Lithia Motors Inc (LAD): Hedge Funds Are Bullish and Insiders Are Undecided, What Should You Do?

Is Lithia Motors Inc (NYSE:LAD) a good investment?

Now, according to many market players, hedge funds are perceived as delayed, old financial vehicles of an era lost to time. Although there are In excess of 8,000 hedge funds with their doors open currently, Insider Monkey looks at the bigwigs of this group, about 525 funds. Analysts calculate that this group oversees the lion’s share of the smart money’s total capital, and by keeping an eye on their best investments, we’ve spotted a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).

Equally as key, positive insider trading sentiment is another way to look at the marketplace. There are plenty of stimuli for an insider to sell shares of his or her company, but only one, very clear reason why they would initiate a purchase. Several academic studies have demonstrated the impressive potential of this method if you understand what to do (learn more here).

What’s more, let’s examine the latest info for Lithia Motors Inc (NYSE:LAD).

How have hedgies been trading Lithia Motors Inc (NYSE:LAD)?

At Q2’s end, a total of 20 of the hedge funds we track were bullish in this stock, a change of 11% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully.

According to our 13F database, Phill Gross and Robert Atchinson’s Adage Capital Management had the largest position in Lithia Motors Inc (NYSE:LAD), worth close to $21 million, accounting for 0.1% of its total 13F portfolio. The second largest stake is held by Sandler Capital Management, managed by Andrew Sandler, which held a $10.5 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other peers with similar optimism include Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Alexander Mitchell’s Scopus Asset Management.

Now, particular hedge funds were leading the bulls’ herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the biggest position in Lithia Motors Inc (NYSE:LAD). Adage Capital Management had 21 million invested in the company at the end of the quarter. Andrew Sandler’s Sandler Capital Management also initiated a $10.5 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw, and Alexander Mitchell’s Scopus Asset Management.

Insider trading activity in Lithia Motors Inc (NYSE:LAD)

Insider buying is particularly usable when the company we’re looking at has experienced transactions within the past 180 days. Over the latest 180-day time frame, Lithia Motors Inc (NYSE:LAD) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

We’ll check out the relationship between both of these indicators in other stocks similar to Lithia Motors Inc (NYSE:LAD). These stocks are Rush Enterprises, Inc. (NASDAQ:RUSHB), KAR Auction Services Inc (NYSE:KAR), Sonic Automotive Inc (NYSE:SAH), Group 1 Automotive, Inc. (NYSE:GPI), and Asbury Automotive Group, Inc. (NYSE:ABG). This group of stocks are in the auto dealerships industry and their market caps are closest to LAD’s market cap.

Using the returns explained by the previously mentioned research, regular investors must always keep one eye on hedge fund and insider trading activity, and Lithia Motors Inc (NYSE:LAD) shareholders fit into this picture quite nicely.

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