Is O’Reilly Automotive Inc (ORLY) A Good Stock To Buy?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards O’Reilly Automotive Inc (NASDAQ:ORLY).

Is ORLY a good stock to buy? O’Reilly Automotive Inc (NASDAQ:ORLY) has seen a decrease in enthusiasm from smart money lately. O’Reilly Automotive Inc (NASDAQ:ORLY) was in 45 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 64. Our calculations also showed that ORLY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 analyze the recent hedge fund action regarding O’Reilly Automotive Inc (NASDAQ:ORLY).

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

At first quarter’s end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ORLY over the last 23 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in O’Reilly Automotive Inc (NASDAQ:ORLY) was held by Akre Capital Management, which reported holding $803 million worth of stock at the end of December. It was followed by Viking Global with a $541.1 million position. Other investors bullish on the company included Two Sigma Advisors, D E Shaw, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position Akre Capital Management allocated the biggest weight to O’Reilly Automotive Inc (NASDAQ:ORLY), around 5.45% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, designating 4.44 percent of its 13F equity portfolio to ORLY.

Due to the fact that O’Reilly Automotive Inc (NASDAQ:ORLY) has faced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of funds that elected to cut their full holdings last quarter. It’s worth mentioning that Daniel Sundheim’s D1 Capital Partners dumped the largest stake of the 750 funds monitored by Insider Monkey, comprising about $451.2 million in stock, and Steven Boyd’s Armistice Capital was right behind this move, as the fund cut about $41 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as O’Reilly Automotive Inc (NASDAQ:ORLY) but similarly valued. These stocks are Paychex, Inc. (NASDAQ:PAYX), Barrick Gold Corporation (NYSE:GOLD), AFLAC Incorporated (NYSE:AFL), Chewy, Inc. (NYSE:CHWY), Marathon Petroleum Corp (NYSE:MPC), The Allstate Corporation (NYSE:ALL), and LyondellBasell Industries NV (NYSE:LYB). This group of stocks’ market valuations are closest to ORLY’s market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAYX,25,872105,-7 GOLD,49,1305890,-4 AFL,36,343937,1 CHWY,32,433780,-6 MPC,46,1966638,3 ALL,41,893928,3 LYB,47,891913,20 Average,39.4,958313,1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.4 hedge funds with bullish positions and the average amount invested in these stocks was $958 million. That figure was $2705 million in ORLY’s case. Barrick Gold Corporation (NYSE:GOLD) is the most popular stock in this table. On the other hand Paychex, Inc. (NASDAQ:PAYX) is the least popular one with only 25 bullish hedge fund positions. O’Reilly Automotive Inc (NASDAQ:ORLY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ORLY is 63.8. 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on ORLY, though not to the same extent, as the stock returned 5.9% since Q1 (through June 18th) and outperformed the market as well.

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

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