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Hedge Funds Are Cashing Out Of D.R. Horton, Inc. (DHI)

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·6 min read
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At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not D.R. Horton, Inc. (NYSE:DHI) makes for a good investment right now.

D.R. Horton, Inc. (NYSE:DHI) has experienced a decrease in enthusiasm from smart money lately. D.R. Horton, Inc. (NYSE:DHI) was in 45 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 66. Our calculations also showed that DHI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the eyes of most traders, hedge funds are perceived as unimportant, old investment vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our experts choose to focus on the aristocrats of this club, around 850 funds. These hedge fund managers oversee bulk of all hedge funds' total asset base, and by paying attention to their inimitable picks, Insider Monkey has uncovered numerous investment strategies that have historically beaten the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website .

George Soros' top 10 stock picks
George Soros' top 10 stock picks

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 go over the latest hedge fund action surrounding D.R. Horton, Inc. (NYSE:DHI).

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

At second quarter's end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DHI over the last 24 quarters. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is DHI A Good Stock To Buy?
Is DHI A Good Stock To Buy?

Among these funds, Egerton Capital Limited held the most valuable stake in D.R. Horton, Inc. (NYSE:DHI), which was worth $752.6 million at the end of the second quarter. On the second spot was Soros Fund Management which amassed $385.3 million worth of shares. Echo Street Capital Management, Appaloosa Management LP, and Greenhaven Associates 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 Soros Fund Management allocated the biggest weight to D.R. Horton, Inc. (NYSE:DHI), around 6.49% of its 13F portfolio. Land & Buildings Investment Management is also relatively very bullish on the stock, designating 4.48 percent of its 13F equity portfolio to DHI.

Seeing as D.R. Horton, Inc. (NYSE:DHI) has witnessed bearish sentiment from the smart money, we can see that there exists a select few fund managers who sold off their full holdings by the end of the second quarter. At the top of the heap, Benjamin A. Smith's Laurion Capital Management dumped the biggest position of all the hedgies followed by Insider Monkey, worth close to $17.8 million in stock. Steve Cohen's fund, Point72 Asset Management, also dumped its stock, about $6.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds by the end of the second quarter.

Let's check out hedge fund activity in other stocks similar to D.R. Horton, Inc. (NYSE:DHI). We will take a look at Williams Companies, Inc. (NYSE:WMB), Mettler-Toledo International Inc. (NYSE:MTD), ArcelorMittal (NYSE:MT), V.F. Corporation (NYSE:VFC), AutoZone, Inc. (NYSE:AZO), Datadog, Inc. (NASDAQ:DDOG), and NatWest Group plc (NYSE:NWG). This group of stocks' market valuations are similar to DHI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WMB,39,551010,5 MTD,35,1267774,8 MT,22,1044502,1 VFC,32,1005658,1 AZO,34,545700,0 DDOG,56,3235244,12 NWG,5,6649,-1 Average,31.9,1093791,3.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $1094 million. That figure was $1887 million in DHI's case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand NatWest Group plc (NYSE:NWG) is the least popular one with only 5 bullish hedge fund positions. D.R. Horton, Inc. (NYSE:DHI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DHI is 59.7. 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. 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 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 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately DHI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DHI were disappointed as the stock returned -7.1% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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