Is Penske Automotive Group, Inc. (PAG) A Good Stock To Buy?

Like everyone else, successful investors make mistakes. Some of their top consensus picks, such as Valeant and SunEdison, have not done well during the last 12 months due to various reasons. Nevertheless, the data show successful investors’ consensus picks have done well on average. The top 30 mid-cap stocks (market caps between $1 billion and $10 billion) among hedge funds delivered an average return of 18% during the last four quarters. S&P 500 Index returned only 7.6% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what successful funds and billionaire investors think before doing extensive research on a stock. In this article, we take a closer look at Penske Automotive Group, Inc. (NYSE:PAG) from the perspective of those successful funds.

Is Penske Automotive Group, Inc. (NYSE:PAG) a first-rate investment today? The best stock pickers are unmistakably reducing their bets on the stock. The number of long hedge fund positions went down by 4 in recent months. PAGwas in 12 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with PAG positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hexcel Corporation (NYSE:HXL), White Mountains Insurance Group Ltd (NYSE:WTM), and Credit Acceptance Corp. (NASDAQ:CACC) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s analyze the fresh action regarding Penske Automotive Group, Inc. (NYSE:PAG).

What does the smart money think about Penske Automotive Group, Inc. (NYSE:PAG)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in PAG at the beginning of this year. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s elite fund database, GAMCO Investors, led by Mario Gabelli, holds the largest position in Penske Automotive Group, Inc. (NYSE:PAG). GAMCO Investors has a $40.3 million position in the stock, comprising 0.3% of its 13F portfolio. On GAMCO Investors’s heels is Balyasny Asset Management, led by Dmitry Balyasny, which holds a $9.5 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers that are bullish encompass Cliff Asness’s AQR Capital Management, Murray Stahl’s Horizon Asset Management and Matthew Hulsizer’s PEAK6 Capital Management. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cashed in their entire stakes in the stock during the third quarter. Interestingly, Edward Goodnow’s Goodnow Investment Group cashed in the largest stake of all the investors followed by Insider Monkey, comprising about $7 million in stock. Renaissance Technologies, one of the largest hedge funds in the world, cut its stock, about $3 million worth.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Penske Automotive Group, Inc. (NYSE:PAG) but similarly valued. These stocks are Hexcel Corporation (NYSE:HXL), White Mountains Insurance Group Ltd (NYSE:WTM), Credit Acceptance Corp. (NASDAQ:CACC), and Yamana Gold Inc. (USA) (NYSE:AUY). All of these stocks’ market caps are similar to PAG’s market cap.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $316 million. That figure was $73 million in PAG’s case. Credit Acceptance Corp. (NASDAQ:CACC) is the most popular stock in this table. On the other hand Hexcel Corporation (NYSE:HXL) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Penske Automotive Group, Inc. (NYSE:PAG) is as less popular than HXL. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.