Should I Avoid Credit Acceptance Corp. (CACC)?

·5 min read

After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of June 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Credit Acceptance Corp. (NASDAQ:CACC).

Credit Acceptance Corp. (NASDAQ:CACC) has seen a decrease in hedge fund interest lately. Credit Acceptance Corp. (NASDAQ:CACC) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistic is 31. Our calculations also showed that CACC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At the moment there are many metrics stock traders can use to assess their stock investments. A duo of the best metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the best fund managers can outpace the S&P 500 by a solid amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

William Von Mueffling - Cantillon Capital Management
William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy 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. Keeping this in mind we're going to check out the key hedge fund action encompassing Credit Acceptance Corp. (NASDAQ:CACC).

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

At Q2's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CACC over the last 24 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CACC A Good Stock To Buy?
Is CACC A Good Stock To Buy?

Among these funds, Gobi Capital held the most valuable stake in Credit Acceptance Corp. (NASDAQ:CACC), which was worth $266.9 million at the end of the second quarter. On the second spot was Cantillon Capital Management which amassed $125 million worth of shares. Goodnow Investment Group, BloombergSen, and Abrams Bison Investments 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 Billings Capital Management allocated the biggest weight to Credit Acceptance Corp. (NASDAQ:CACC), around 22.05% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, designating 16.07 percent of its 13F equity portfolio to CACC.

Since Credit Acceptance Corp. (NASDAQ:CACC) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of money managers who were dropping their positions entirely in the second quarter. Intriguingly, Ken Griffin's Citadel Investment Group dropped the largest stake of the "upper crust" of funds followed by Insider Monkey, worth close to $18.2 million in stock. Quincy Lee's fund, Ancient Art (Teton Capital), also dumped its stock, about $6.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the second quarter.

Let's check out hedge fund activity in other stocks similar to Credit Acceptance Corp. (NASDAQ:CACC). We will take a look at Scientific Games Corp (NASDAQ:SGMS), Apartment Income REIT Corp. (NYSE:AIRC), RenaissanceRe Holdings Ltd. (NYSE:RNR), Olin Corporation (NYSE:OLN), Upwork Inc. (NASDAQ:UPWK), IAA, Inc. (NYSE:IAA), and Gildan Activewear Inc (NYSE:GIL). All of these stocks' market caps resemble CACC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SGMS,24,1451681,1 AIRC,14,479817,0 RNR,31,446197,1 OLN,37,1325786,3 UPWK,26,427800,-6 IAA,33,829694,-2 GIL,19,726018,2 Average,26.3,812428,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $812 million. That figure was $575 million in CACC's case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Apartment Income REIT Corp. (NYSE:AIRC) is the least popular one with only 14 bullish hedge fund positions. Credit Acceptance Corp. (NASDAQ:CACC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CACC is 34.4. 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 CACC as the stock returned 37.1% 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.

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