Were Hedge Funds Right About Piling Into O’Reilly Automotive Inc (ORLY)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded O’Reilly Automotive Inc (NASDAQ:ORLY) and determine whether the smart money was really smart about this stock.

O’Reilly Automotive Inc (NASDAQ:ORLY) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. Our calculations also showed that ORLY isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andreas Halvorsen of Viking Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the latest hedge fund action surrounding O’Reilly Automotive Inc (NASDAQ:ORLY).

Hedge fund activity in O’Reilly Automotive Inc (NASDAQ:ORLY)

Heading into the second quarter of 2020, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 43 hedge funds held shares or bullish call options in ORLY a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Among these funds, D1 Capital Partners held the most valuable stake in O’Reilly Automotive Inc (NASDAQ:ORLY), which was worth $848.6 million at the end of the third quarter. On the second spot was Akre Capital Management which amassed $554.8 million worth of shares. Viking Global, Diamond Hill Capital, and SRS Investment Management 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 D1 Capital Partners allocated the biggest weight to O’Reilly Automotive Inc (NASDAQ:ORLY), around 8.77% of its 13F portfolio. Akre Capital Management is also relatively very bullish on the stock, designating 5.39 percent of its 13F equity portfolio to ORLY.

Since O’Reilly Automotive Inc (NASDAQ:ORLY) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there were a few fund managers that decided to sell off their positions entirely in the first quarter. Interestingly, David Abrams’s Abrams Capital Management dumped the biggest stake of the 750 funds followed by Insider Monkey, valued at about $227.7 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $56.4 million worth. These moves are important to note, as total hedge fund interest fell by 4 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to O’Reilly Automotive Inc (NASDAQ:ORLY). We will take a look at KLA Corporation (NASDAQ:KLAC), Spotify Technology S.A. (NYSE:SPOT), Agilent Technologies Inc. (NYSE:A), and Willis Towers Watson Public Limited Company (NASDAQ:WLTW). All of these stocks’ market caps are closest to ORLY’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1457 million. That figure was $2487 million in ORLY’s case. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is the most popular stock in this table. On the other hand KLA Corporation (NASDAQ:KLAC) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks O’Reilly Automotive Inc (NASDAQ:ORLY) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ORLY as the stock returned 40.1% in Q2 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.

Disclosure: None. This article was originally published at Insider Monkey.