Giverny Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. You should check out Giverny Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.
In the said letter, Giverny Capital highlighted a few stocks and Carmax Inc (NYSE:KMX) is one of them. CarMax is a used-car retail company. Year-to-date, Carmax Inc (NYSE:KMX) stock lost 3.5% and on May 22nd it had a closing price of $81.55. Here is what Giverny Capital said:
“Our second largest holding is Carmax at 6.6% of the portfolio. Carmax has one of the more deceptively good business models I know. Selling used cars in a no-haggle environment doesn’t sound very hard. But to date, no one else has been able to copy the model profitably. Many have tried. It’s possible to undersell Carmax, but it’s much harder to undersell Carmax and also acquire trade-ins efficiently, recondition them for resale, provide a fair financing offer to customers and maintain trust, while earning a healthy profit. Carmax has gobbled up market share almost continuously since its founding and roughly quadrupled its earnings per share over the past decade. Yet it still holds only about a 2% share of the enormous U.S. used car market.
Recently, Carmax has begun selling more cars via the Internet, which could further lower its costs while reaching more customers. Test markets with Internet sales and store-based sales have generated stronger sales than markets with stores only, suggesting Carmax’s market share gains could accelerate as it rolls out Internet sales nationwide this year. Carmax has warned that its socalled omni-channel initiative will require increased investment for a couple of years. We’re happy to see management make this investment and believe this company is not close to maturity. Carmax shares have fared poorly in the current market rout. If people are quarantined, they can’t buy cars. This is expensive inventory to have sitting on lots and used cars seem to decline in value by about $10 per day. So Carmax may be in for a rough patch as its inventory sits in the sun and loses value. Shares have been wildly volatile this month, losing half their value before rebounding a bit this week. We’re content to hold Carmax as it builds a dominant franchise over time.”
In Q4 2019, the number of bullish hedge fund positions on Carmax Inc (NYSE:KMX) stock increased by about 14% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with KMX’s growth potential. Our calculations showed that Carmax Inc (NYSE:KMX) isn’t among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 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. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:
Disclosure: None. This article is originally published at Insider Monkey.
