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Hedge Funds Are Selling D.R. Horton, Inc. (DHI)

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In this article we will analyze whether D.R. Horton, Inc. (NYSE:DHI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is D.R. Horton, Inc. (NYSE:DHI) a great stock to buy now? Prominent investors were becoming less confident. The number of bullish hedge fund bets dropped by 14 lately. D.R. Horton, Inc. (NYSE:DHI) was in 50 hedge funds' portfolios at the end of March. 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 Q1 rankings). There were 64 hedge funds in our database with DHI positions at the end of the fourth quarter.

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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

best high yield dividend stocks according to george soros
best high yield dividend stocks according to george soros

George Soros of Soros Fund Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 review 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 the end of the first quarter, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the fourth quarter of 2020. On the other hand, there were a total of 65 hedge funds with a bullish position in DHI a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

The largest stake in D.R. Horton, Inc. (NYSE:DHI) was held by Egerton Capital Limited, which reported holding $914.7 million worth of stock at the end of December. It was followed by Soros Fund Management with a $392.8 million position. Other investors bullish on the company included Echo Street Capital Management, Appaloosa Management LP, and Greenhaven Associates. 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 7.36% of its 13F portfolio. Egerton Capital Limited is also relatively very bullish on the stock, setting aside 4.82 percent of its 13F equity portfolio to DHI.

Seeing as D.R. Horton, Inc. (NYSE:DHI) has witnessed declining sentiment from the smart money, we can see that there was a specific group of hedge funds that elected to cut their full holdings last quarter. At the top of the heap, Renaissance Technologies dropped the biggest investment of the 750 funds tracked by Insider Monkey, worth about $50.7 million in stock. Ken Heebner's fund, Capital Growth Management, also cut its stock, about $20.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 14 funds last quarter.

Let's now review hedge fund activity in other stocks similar to D.R. Horton, Inc. (NYSE:DHI). These stocks are CoStar Group Inc (NASDAQ:CSGP), TAL Education Group (NYSE:TAL), PACCAR Inc (NASDAQ:PCAR), TransDigm Group Incorporated (NYSE:TDG), Brown-Forman Corporation (NYSE:BF), Suncor Energy Inc. (NYSE:SU), and BeiGene, Ltd. (NASDAQ:BGNE). All of these stocks' market caps are similar to DHI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSGP,43,2784728,-8 TAL,38,1373412,9 PCAR,28,626282,-6 TDG,62,6290864,-2 BF,35,1477271,6 SU,33,1047702,8 BGNE,19,6242377,-2 Average,36.9,2834662,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.9 hedge funds with bullish positions and the average amount invested in these stocks was $2835 million. That figure was $2174 million in DHI's case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 19 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 49.8. 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 17.4% in 2021 through June 18th and beat the market again by 6.1 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 1.1% since the end of March (through 6/18) 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.