At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Lennar Corporation (NYSE:LEN) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Lennar Corporation (NYSE:LEN) investors should be aware of a decrease in enthusiasm from smart money lately. Lennar Corporation (NYSE:LEN) was in 55 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 66. There were 57 hedge funds in our database with LEN positions at the end of the first quarter. Our calculations also showed that LEN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let's review the key hedge fund action encompassing Lennar Corporation (NYSE:LEN).
How are hedge funds trading Lennar Corporation (NYSE:LEN)?
At second quarter's end, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LEN over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lennar Corporation (NYSE:LEN) was held by Greenhaven Associates, which reported holding $582.9 million worth of stock at the end of September. It was followed by Eminence Capital with a $138.4 million position. Other investors bullish on the company included Theleme Partners, Echo Street Capital Management, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Lennar Corporation (NYSE:LEN), around 12.9% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, designating 6.02 percent of its 13F equity portfolio to LEN.
Due to the fact that Lennar Corporation (NYSE:LEN) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedgies who were dropping their positions entirely by the end of the second quarter. It's worth mentioning that Daniel S. Och's OZ Management sold off the biggest position of the 750 funds watched by Insider Monkey, valued at about $11.2 million in stock, and George Soros's Soros Fund Management was right behind this move, as the fund said goodbye to about $5.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.
Let's go over hedge fund activity in other stocks similar to Lennar Corporation (NYSE:LEN). These stocks are Energy Transfer L.P. (NYSE:ET), Church & Dwight Co., Inc. (NYSE:CHD), MarketAxess Holdings Inc. (NASDAQ:MKTX), Keysight Technologies Inc (NYSE:KEYS), Wipro Limited (NYSE:WIT), Entergy Corporation (NYSE:ETR), and The Trade Desk, Inc. (NASDAQ:TTD). This group of stocks' market valuations resemble LEN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ET,31,552361,-2 CHD,33,508177,-3 MKTX,33,918191,6 KEYS,47,564484,7 WIT,7,59120,0 ETR,32,953385,-2 TTD,20,513971,-5 Average,29,581384,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $581 million. That figure was $1693 million in LEN's case. Keysight Technologies Inc (NYSE:KEYS) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Lennar Corporation (NYSE:LEN) is more popular among hedge funds. Our overall hedge fund sentiment score for LEN is 78. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 28.2% in 2020 through August 24th but still managed to beat the market by 20.6 percentage points. Hedge funds were also right about betting on LEN as the stock returned 28% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.