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Hedge Funds Are Buying Meritage Homes Corporation (MTH)

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Meritage Homes Corporation (NYSE:MTH).

Is Meritage Homes Corporation (NYSE:MTH) a worthy investment today? Hedge funds are taking an optimistic view. The number of bullish hedge fund bets inched up by 1 lately. Our calculations also showed that MTH isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the fresh hedge fund action encompassing Meritage Homes Corporation (NYSE:MTH).

How have hedgies been trading Meritage Homes Corporation (NYSE:MTH)?

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in MTH a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MTH Positions

According to Insider Monkey's hedge fund database, Ken Fisher's Fisher Asset Management has the biggest position in Meritage Homes Corporation (NYSE:MTH), worth close to $77.7 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is East Side Capital (RR Partners), led by Steven Richman, holding a $46.4 million position; 5.1% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish contain Greg Poole's Echo Street Capital Management, Noam Gottesman's GLG Partners and Lee Ainslie's Maverick Capital.

Consequently, key hedge funds have been driving this bullishness. Maverick Capital, managed by Lee Ainslie, established the most outsized position in Meritage Homes Corporation (NYSE:MTH). Maverick Capital had $5.7 million invested in the company at the end of the quarter. George Soros's Soros Fund Management also made a $4.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital, Chuck Royce's Royce & Associates, and Thomas Bailard's Bailard Inc.

Let's check out hedge fund activity in other stocks similar to Meritage Homes Corporation (NYSE:MTH). We will take a look at Northwest Natural Holding Company (NYSE:NWN), LegacyTexas Financial Group Inc (NASDAQ:LTXB), NetScout Systems, Inc. (NASDAQ:NTCT), and Colony Credit Real Estate, Inc. (NYSE:CLNC). All of these stocks' market caps resemble MTH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NWN,12,80588,1 LTXB,15,67499,3 NTCT,14,118278,2 CLNC,8,21487,2 Average,12.25,71963,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $191 million in MTH's case. LegacyTexas Financial Group Inc (NASDAQ:LTXB) is the most popular stock in this table. On the other hand Colony Credit Real Estate, Inc. (NYSE:CLNC) is the least popular one with only 8 bullish hedge fund positions. Meritage Homes Corporation (NYSE:MTH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on MTH as the stock returned 37% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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