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Hedge Funds Cashed Out Of Beazer Homes USA, Inc. (BZH) Way Too Early

Abigail Fisher

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Beazer Homes USA, Inc. (NYSE:BZH) has experienced a decrease in hedge fund interest lately. Our calculations also showed that BZH isn't among the 30 most popular stocks among hedge funds (see 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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

BZH_nov2019

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to go over the latest hedge fund action regarding Beazer Homes USA, Inc. (NYSE:BZH).

What have hedge funds been doing with Beazer Homes USA, Inc. (NYSE:BZH)?

Heading into the third quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BZH over the last 16 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Andy Redleaf Andrew Redleaf Whitebox Advisors

Among these funds, Royce & Associates held the most valuable stake in Beazer Homes USA, Inc. (NYSE:BZH), which was worth $12.9 million at the end of the second quarter. On the second spot was Whitebox Advisors which amassed $4.6 million worth of shares. Moreover, Citadel Investment Group, D E Shaw, and Ellington were also bullish on Beazer Homes USA, Inc. (NYSE:BZH), allocating a large percentage of their portfolios to this stock.

Since Beazer Homes USA, Inc. (NYSE:BZH) has faced a decline in interest from the smart money, it's safe to say that there was a specific group of fund managers that elected to cut their entire stakes in the second quarter. It's worth mentioning that Alec Litowitz and Ross Laser's Magnetar Capital sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $1.3 million in stock. Jeffrey Talpins's fund, Element Capital Management, also sold off its stock, about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the second quarter.

Let's go over hedge fund activity in other stocks similar to Beazer Homes USA, Inc. (NYSE:BZH). These stocks are BioLife Solutions, Inc. (NASDAQ:BLFS), Clearwater Paper Corp (NYSE:CLW), Radiant Logistics, Inc. (NYSE:RLGT), and Xeris Pharmaceuticals, Inc. (NASDAQ:XERS). All of these stocks' market caps are closest to BZH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLFS,13,76163,-2 CLW,8,18809,-1 RLGT,12,11827,0 XERS,5,62931,-2 Average,9.5,42433,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $25 million in BZH's case. BioLife Solutions, Inc. (NASDAQ:BLFS) is the most popular stock in this table. On the other hand Xeris Pharmaceuticals, Inc. (NASDAQ:XERS) is the least popular one with only 5 bullish hedge fund positions. Beazer Homes USA, Inc. (NYSE:BZH) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on BZH as the stock returned 55% during the same time frame and outperformed the market by an even larger margin.

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

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