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Is LGIH Stock A Buy or Sell?

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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is LGI Homes Inc (NASDAQ:LGIH), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is LGIH stock a buy? LGI Homes Inc (NASDAQ:LGIH) shareholders have witnessed a decrease in hedge fund interest in recent months. LGI Homes Inc (NASDAQ:LGIH) was in 23 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 25. There were 25 hedge funds in our database with LGIH holdings at the end of September. Our calculations also showed that LGIH isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.


Louis Bacon Moore of Moore Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. Keeping this in mind we're going to check out the key hedge fund action encompassing LGI Homes Inc (NASDAQ:LGIH).

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

Heading into the first quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LGIH over the last 22 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Harspring Capital Management held the most valuable stake in LGI Homes Inc (NASDAQ:LGIH), which was worth $14.9 million at the end of the fourth quarter. On the second spot was Driehaus Capital which amassed $13.9 million worth of shares. Royce & Associates, Millennium Management, and Voss Capital 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 DC Capital Partners allocated the biggest weight to LGI Homes Inc (NASDAQ:LGIH), around 5.5% of its 13F portfolio. Voss Capital is also relatively very bullish on the stock, dishing out 3.2 percent of its 13F equity portfolio to LGIH.

Judging by the fact that LGI Homes Inc (NASDAQ:LGIH) has faced bearish sentiment from the smart money, it's easy to see that there lies a certain "tier" of hedge funds that decided to sell off their entire stakes heading into Q1. It's worth mentioning that Ken Heebner's Capital Growth Management dropped the largest position of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $38.9 million in stock. Ben Levine, Andrew Manuel and Stefan Renold's fund, LMR Partners, also dropped its stock, about $7.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds heading into Q1.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as LGI Homes Inc (NASDAQ:LGIH) but similarly valued. We will take a look at Arcosa, Inc. (NYSE:ACA), Opko Health Inc. (NASDAQ:OPK), Ameris Bancorp (NASDAQ:ABCB), CVB Financial Corp. (NASDAQ:CVBF), United States Cellular Corporation (NYSE:USM), Sonos, Inc. (NASDAQ:SONO), and Investors Bancorp, Inc. (NASDAQ:ISBC). This group of stocks' market values are similar to LGIH's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACA,17,216350,-2 OPK,16,20591,5 ABCB,18,99769,5 CVBF,11,29995,-2 USM,11,88794,-2 SONO,43,603252,11 ISBC,24,211515,-4 Average,20,181467,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $91 million in LGIH's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 11 bullish hedge fund positions. LGI Homes Inc (NASDAQ:LGIH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LGIH is 49.4. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on LGIH as the stock returned 60.8% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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