Is Sonic Automotive Inc (SAH) A Good Stock To Buy?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Sonic Automotive Inc (NYSE:SAH) investors should be aware of an increase in enthusiasm from smart money of late. 13 hedge funds that we track were long the stock on September 30. There were 10 hedge funds in our database with SAH positions at the end of the previous quarter. At the end of this article we will also compare SAH to other stocks including Hi-Crush Partners LP (NYSE:HCLP), Tile Shop Hldgs, Inc. (NASDAQ:TTS), and CenterState Banks Inc (NASDAQ:CSFL) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Hedge fund activity in Sonic Automotive Inc (NYSE:SAH)

At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 30% rise from the second quarter of 2016. By comparison, 12 hedge funds held shares or bullish call options in SAH heading into this year, so ownership of the stock has increased only marginally in 2016, through the end of September. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Elliott Management, led by Paul Singer, holds the largest position in Sonic Automotive Inc (NYSE:SAH). Elliott Management has an $8.8 million position in the stock. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, which holds a $7.8 million position. Other hedge funds and institutional investors with similar optimism consist of Richard Rubin’s Hawkeye Capital, Mario Cibelli’s Marathon Partners, and Steve Cohen’s Point72 Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now, specific money managers have jumped into Sonic Automotive Inc (NYSE:SAH) headfirst. Elliott Management established the most outsized position in Sonic Automotive Inc (NYSE:SAH). Citadel Investment Group‘s $7.8 million position was also a new one added to its portfolio during the quarter. The other funds with brand new SAH positions are Israel Englander’s Millennium Management, Andrew Weiss’ Weiss Asset Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Sonic Automotive Inc (NYSE:SAH) but similarly valued. We will take a look at Hi-Crush Partners LP (NYSE:HCLP), Tile Shop Hldgs, Inc. (NASDAQ:TTS), CenterState Banks Inc (NASDAQ:CSFL), and Continental Building Products Inc (NYSE:CBPX). This group of stocks’ market values resemble SAH’s market value.

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 $87 million. That figure was $38 million in SAH’s case. Continental Building Products Inc (NYSE:CBPX) is the most popular stock in this table. On the other hand Hi-Crush Partners LP (NYSE:HCLP) is the least popular one with only 10 bullish hedge fund positions. Sonic Automotive Inc (NYSE:SAH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CBPX might be a better candidate to consider taking a long position in.

Disclosure: None