Where Do Hedge Funds Stand On AutoNation, Inc. (AN)?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about AutoNation, Inc. (NYSE:AN).

Hedge fund interest in AutoNation, Inc. (NYSE:AN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare AN to other stocks including Cameco Corporation (NYSE:CCJ), Acceleron Pharma Inc (NASDAQ:XLRN), and Zhihu Inc. (NYSE:ZH) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Ken Heebner of Capital Growth Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a gander at the recent hedge fund action regarding AutoNation, Inc. (NYSE:AN).

Do Hedge Funds Think AN Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in AN a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ricky Sandler’s Eminence Capital has the most valuable position in AutoNation, Inc. (NYSE:AN), worth close to $122.1 million, accounting for 1.5% of its total 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which holds a $106.1 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Edward Lampert’s ESL Investments and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position ESL Investments allocated the biggest weight to AutoNation, Inc. (NYSE:AN), around 50.05% of its 13F portfolio. Eminence Capital is also relatively very bullish on the stock, earmarking 1.5 percent of its 13F equity portfolio to AN.

Judging by the fact that AutoNation, Inc. (NYSE:AN) has faced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds that decided to sell off their full holdings heading into Q3. Interestingly, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $3.2 million in stock. Donald Sussman’s fund, Paloma Partners, also dumped its stock, about $2.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to AutoNation, Inc. (NYSE:AN). We will take a look at Cameco Corporation (NYSE:CCJ), Acceleron Pharma Inc (NASDAQ:XLRN), Zhihu Inc. (NYSE:ZH), II-VI, Inc. (NASDAQ:IIVI), Crocs, Inc. (NASDAQ:CROX), Old Republic International Corporation (NYSE:ORI), and Shift4 Payments, Inc. (NYSE:FOUR). This group of stocks’ market valuations are similar to AN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $642 million. That figure was $611 million in AN’s case. Acceleron Pharma Inc (NASDAQ:XLRN) is the most popular stock in this table. On the other hand Zhihu Inc. (NYSE:ZH) is the least popular one with only 10 bullish hedge fund positions. AutoNation, Inc. (NYSE:AN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AN is 46.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on AN as the stock returned 37.6% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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