Is Advance Auto Parts, Inc. (NYSE:AAP) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from industry insiders. They sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Is Advance Auto Parts, Inc. (NYSE:AAP) worth your attention right now? Hedge funds are in an optimistic mood. The number of bullish hedge fund positions advanced by 9 recently. Our calculations also showed that AAP isn't among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

We're going to go over the new hedge fund action surrounding Advance Auto Parts, Inc. (NYSE:AAP).

How are hedge funds trading Advance Auto Parts, Inc. (NYSE:AAP)?

At Q3's end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from the second quarter of 2018. By comparison, 26 hedge funds held shares or bullish call options in AAP heading into this year. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Advance Auto Parts, Inc. (NYSE:AAP) was held by Starboard Value LP, which reported holding $534.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $365 million position. Other investors bullish on the company included Millennium Management, SRS Investment Management, and Adage Capital Management.

As industrywide interest jumped, specific money managers were leading the bulls' herd. Blue Mountain Capital, managed by Andrew Feldstein and Stephen Siderow, initiated the most outsized position in Advance Auto Parts, Inc. (NYSE:AAP). Blue Mountain Capital had $8.9 million invested in the company at the end of the quarter. Seth Wunder's Black-and-White Capital also made a $8.8 million investment in the stock during the quarter. The other funds with brand new AAP positions are Gregg Moskowitz's Interval Partners, Matthew Tewksbury's Stevens Capital Management, and Ira Unschuld's Brant Point Investment Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Advance Auto Parts, Inc. (NYSE:AAP) but similarly valued. We will take a look at Kohl's Corporation (NYSE:KSS), Keysight Technologies Inc (NYSE:KEYS), Akamai Technologies, Inc. (NASDAQ:AKAM), and Cna Financial Corporation (NYSE:CNA). This group of stocks' market valuations are closest to AAP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KSS,29,954349,3 KEYS,29,630589,3 AKAM,29,784777,1 CNA,15,80361,0 Average,25.5,612519,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $613 million. That figure was $1.78 billion in AAP's case. Kohl's Corporation (NYSE:KSS) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Advance Auto Parts, Inc. (NYSE:AAP) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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