Hedge Funds Are Betting On Advance Auto Parts, Inc. (AAP)

·5 min read

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Advance Auto Parts, Inc. (NYSE:AAP).

Advance Auto Parts, Inc. (NYSE:AAP) has experienced an increase in support from the world's most elite money managers recently. Advance Auto Parts, Inc. (NYSE:AAP) was in 35 hedge funds' portfolios at the end of September. The all time high for this statistic is 62. Our calculations also showed that AAP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Ricky Sandler's tsop 10 stock picks
Ricky Sandler's tsop 10 stock picks

Ricky Sandler of Eminence Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind let's go over the latest hedge fund action surrounding Advance Auto Parts, Inc. (NYSE:AAP).

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

Heading into the fourth quarter of 2021, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in AAP a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is AAP A Good Stock To Buy?
Is AAP A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Advance Auto Parts, Inc. (NYSE:AAP), with a stake worth $123.6 million reported as of the end of September. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $110.1 million. Eminence Capital, Bristol Gate Capital Partners, and Adage Capital 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 Tensile Capital allocated the biggest weight to Advance Auto Parts, Inc. (NYSE:AAP), around 6.03% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, designating 4.45 percent of its 13F equity portfolio to AAP.

As one would reasonably expect, key hedge funds were breaking ground themselves. Bristol Gate Capital Partners, managed by Peter Simmie, assembled the most valuable position in Advance Auto Parts, Inc. (NYSE:AAP). Bristol Gate Capital Partners had $86.6 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $13.8 million investment in the stock during the quarter. The following funds were also among the new AAP investors: Lee Ainslie's Maverick Capital, Paul Tudor Jones's Tudor Investment Corp, and Noam Gottesman's GLG Partners.

Let's now review hedge fund activity in other stocks similar to Advance Auto Parts, Inc. (NYSE:AAP). We will take a look at Packaging Corporation Of America (NYSE:PKG), Telefonica Brasil SA (NYSE:VIV), The J.M. Smucker Company (NYSE:SJM), W.R. Berkley Corporation (NYSE:WRB), Fidelity National Financial Inc (NYSE:FNF), Lincoln National Corporation (NYSE:LNC), and SoFi Technologies Inc. (NASDAQ:SOFI). This group of stocks' market valuations resemble AAP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PKG,26,281022,-5 VIV,5,42334,-4 SJM,25,506030,-9 WRB,26,593633,-10 FNF,32,1390536,-2 LNC,29,734657,-1 SOFI,33,852850,33 Average,25.1,628723,0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $629 million. That figure was $899 million in AAP's case. SoFi Technologies Inc. (NASDAQ:SOFI) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Advance Auto Parts, Inc. (NYSE:AAP) is more popular among hedge funds. Our overall hedge fund sentiment score for AAP is 72.9. 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 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Unfortunately AAP wasn't nearly as popular as these 5 stocks and hedge funds that were betting on AAP were disappointed as the stock returned 5.7% since the end of the third quarter (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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

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