We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 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 The New Home Company Inc. (NYSE:NWHM).
Is The New Home Company Inc. (NYSE:NWHM) worth your attention right now? Hedge funds are getting more optimistic. The number of long hedge fund bets improved by 2 recently. Our calculations also showed that NWHM 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_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/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 take a look at the fresh hedge fund action surrounding The New Home Company Inc. (NYSE:NWHM).
How have hedgies been trading The New Home Company Inc. (NYSE:NWHM)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NWHM over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Second Curve Capital was the largest shareholder of The New Home Company Inc. (NYSE:NWHM), with a stake worth $8.1 million reported as of the end of September. Trailing Second Curve Capital was Royce & Associates, which amassed a stake valued at $4.3 million. Gratia Capital, Millennium Management, and D E Shaw 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 Snow Park Capital Partners allocated the biggest weight to The New Home Company Inc. (NYSE:NWHM), around 5.14% of its 13F portfolio. Second Curve Capital is also relatively very bullish on the stock, dishing out 4.94 percent of its 13F equity portfolio to NWHM.
As aggregate interest increased, key hedge funds were leading the bulls' herd. Renaissance Technologies established the biggest position in The New Home Company Inc. (NYSE:NWHM). Renaissance Technologies had $0.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also made a $0.2 million investment in the stock during the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as The New Home Company Inc. (NYSE:NWHM) but similarly valued. These stocks are EMCORE Corporation (NASDAQ:EMKR), Mediwound Ltd (NASDAQ:MDWD), United-Guardian, Inc. (NASDAQ:UG), and RiceBran Technologies (NASDAQ:RIBT). This group of stocks' market valuations are closest to NWHM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EMKR,13,33826,2 MDWD,1,918,0 UG,2,7909,0 RIBT,4,1516,0 Average,5,11042,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $17 million in NWHM's case. EMCORE Corporation (NASDAQ:EMKR) is the most popular stock in this table. On the other hand Mediwound Ltd (NASDAQ:MDWD) is the least popular one with only 1 bullish hedge fund positions. The New Home Company Inc. (NYSE:NWHM) 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 NWHM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NWHM 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.