Black Bear Value Partners recently released its Q4 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -6.5% (net) in 2020, underperforming its benchmark, the S&P 500 Index which returned 18.4% in the same period. You should check out Black Bear Value Partners’ top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.
In the Q4 2020 Investor Letter, the fund highlighted a few stocks and AutoNation Inc. (NYSE:AN) is one of them. AutoNation Inc. (NYSE:AN) is an automotive retailer. In the last three months, AutoNation Inc. (NYSE:AN) stock gained 27% and on March 10th it had a closing price of $87.14. Here is what the fund said:
“Despite COVID, AutoNation and the auto dealer industry experienced a record year. While new and used car volumes are down, dealers have been able to increase profit margins due to a variable cost operating model and lower inventories.
Auto dealers have a large variable component to their expense base as they can reduce headcount, ad spending and other costs when business slows. We saw evidence of this in 2008 which repeated in 2020.
AutoNation has been testing used car supercenters called AutoNation USA over the last 2 years. Given its’ success they are investing an incremental $200MM to open another 20 over the coming 3 years. This is another potential area of growth for the company.
There is a lot of focus on online car shopping disintermediating traditional retailers like AutoNation in the used car market. Note that most traditional dealers have pivoted to online fulfillment. The legacy dealers have an inherent advantage both in terms of sourcing cheap cars from trade-in and scale/density of existing dealerships to transport cars. Additionally, the cash produced by the parts and service business allows AN to reinvest in other methods of customer fulfillment whether they be online, in person, or omnichannel.
The 1-2 lot dealers will likely be the ones to suffer as they lack scale and density. The short-term disruptions to the business from COVID will accelerate changes and benefit those who have (AN) and hurt those who do not (smaller dealers).
AutoNation can generate a range of $4.00-$7.00 in free cash flow per year. This implies a 5-8% yield to us presuming limited growth. My expectations for AutoNation’s prospects have gradually improved as I see them effectively addressing costs and reinvesting in areas of growth.”
In Q3 2020, the number of bullish hedge fund positions on AutoNation Inc. (NYSE:AN) stock increased by about 14% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in AutoNation ‘s growth potential. Our calculations showed that AutoNation Inc. (NYSE:AN) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
