With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Beazer Homes USA, Inc. (NYSE:BZH).
Beazer Homes USA, Inc. (NYSE:BZH) has seen an increase in hedge fund interest in recent months. BZH was in 15 hedge funds' portfolios at the end of September. There were 7 hedge funds in our database with BZH holdings at the end of the previous quarter. Our calculations also showed that BZH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_27480" align="alignnone" width="600"] Israel Englander of Millennium Management[/caption]
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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to review the key hedge fund action encompassing Beazer Homes USA, Inc. (NYSE:BZH).
What have hedge funds been doing with Beazer Homes USA, Inc. (NYSE:BZH)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 114% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in BZH over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in Beazer Homes USA, Inc. (NYSE:BZH), which was worth $18.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $6.9 million worth of shares. Whitebox Advisors, Arrowstreet Capital, and Millennium 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 Waterfront Capital Partners allocated the biggest weight to Beazer Homes USA, Inc. (NYSE:BZH), around 0.47% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to BZH.
Now, some big names have jumped into Beazer Homes USA, Inc. (NYSE:BZH) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Beazer Homes USA, Inc. (NYSE:BZH). Arrowstreet Capital had $4 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $3.5 million investment in the stock during the quarter. The following funds were also among the new BZH investors: Eduardo Abush's Waterfront Capital Partners, Richard Driehaus's Driehaus Capital, and Bruce Kovner's Caxton Associates.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Beazer Homes USA, Inc. (NYSE:BZH) but similarly valued. These stocks are Exterran Corporation (NYSE:EXTN), OraSure Technologies, Inc. (NASDAQ:OSUR), Capital City Bank Group, Inc. (NASDAQ:CCBG), and Sinovac Biotech Ltd. (NASDAQ:SVA). This group of stocks' market valuations are closest to BZH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXTN,18,46058,4 OSUR,19,82277,2 CCBG,3,8944,0 SVA,3,70156,0 Average,10.75,51859,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $50 million in BZH's case. OraSure Technologies, Inc. (NASDAQ:OSUR) is the most popular stock in this table. On the other hand, Capital City Bank Group, Inc. (NASDAQ:CCBG) is the least popular one with only 3 bullish hedge fund positions. Beazer Homes USA, Inc. (NYSE:BZH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately, BZH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BZH were disappointed as the stock returned 2.8% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large-cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.