Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Avis Budget Group Inc. (NASDAQ:CAR)? The smart money sentiment can provide an answer to this question.
Is CAR a good stock to buy? Avis Budget Group Inc. (NASDAQ:CAR) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Avis Budget Group Inc. (NASDAQ:CAR) was in 34 hedge funds’ portfolios at the end of September. The all time high for this statistic is 44. Our calculations also showed that CAR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are a lot of methods shareholders employ to assess their stock investments. A pair of the best methods are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best money managers can beat their index-focused peers by a very impressive amount (see the details here).
Israel Englander of Millennium Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Avis Budget Group Inc. (NASDAQ:CAR).
Do Hedge Funds Think CAR Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 62% from the second quarter of 2020. By comparison, 23 hedge funds held shares or bullish call options in CAR a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, SRS Investment Management held the most valuable stake in Avis Budget Group Inc. (NASDAQ:CAR), which was worth $475 million at the end of the third quarter. On the second spot was CQS Cayman LP which amassed $66.5 million worth of shares. Pzena Investment Management, Melvin Capital Management, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position CQS Cayman LP allocated the biggest weight to Avis Budget Group Inc. (NASDAQ:CAR), around 8.8% of its 13F portfolio. SRS Investment Management is also relatively very bullish on the stock, dishing out 8.78 percent of its 13F equity portfolio to CAR.
As aggregate interest increased, specific money managers were breaking ground themselves. CQS Cayman LP, managed by Michael Hintze, assembled the biggest position in Avis Budget Group Inc. (NASDAQ:CAR). CQS Cayman LP had $66.5 million invested in the company at the end of the quarter. Paul Reeder and Edward Shapiro’s PAR Capital Management also made a $13.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Robert Pohly’s Samlyn Capital, and Gregg Moskowitz’s Interval Partners.
Let’s now review hedge fund activity in other stocks similar to Avis Budget Group Inc. (NASDAQ:CAR). We will take a look at ServisFirst Bancshares, Inc. (NASDAQ:SFBS), Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), Sanmina Corporation (NASDAQ:SANM), Rogers Corporation (NYSE:ROG), Prestige Consumer Healthcare Inc. (NYSE:PBH), GrafTech International Ltd. (NYSE:EAF), and TC Pipelines, LP (NYSE:TCP). This group of stocks’ market caps are similar to CAR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SFBS | 8 | 6464 | -1 |
| MDGL | 15 | 507679 | 0 |
| SANM | 15 | 135028 | -5 |
| ROG | 19 | 94135 | 6 |
| PBH | 17 | 110462 | -3 |
| EAF | 26 | 145437 | 2 |
| TCP | 3 | 2859 | 1 |
| Average | 14.7 | 143152 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $836 million in CAR’s case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Avis Budget Group Inc. (NASDAQ:CAR) is more popular among hedge funds. Our overall hedge fund sentiment score for CAR is 83.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on CAR as the stock returned 37.7% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
