While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding M/I Homes Inc (NYSE:MHO).
Is MHO a good stock to buy now? Prominent investors were becoming more confident. The number of long hedge fund positions rose by 3 recently. M/I Homes Inc (NYSE:MHO) was in 18 hedge funds' portfolios at the end of September. The all time high for this statistic is 20. Our calculations also showed that MHO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 15 hedge funds in our database with MHO positions at the end of the second quarter. 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 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover 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 and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now we're going to take a gander at the latest hedge fund action regarding M/I Homes Inc (NYSE:MHO).
Do Hedge Funds Think MHO Is A Good Stock To Buy Now?
At the end of September, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the second quarter of 2020. By comparison, 19 hedge funds held shares or bullish call options in MHO a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Basswood Capital, managed by Matthew Lindenbaum, holds the number one position in M/I Homes Inc (NYSE:MHO). Basswood Capital has a $33.7 million position in the stock, comprising 2.8% of its 13F portfolio. On Basswood Capital's heels is Balyasny Asset Management, managed by Dmitry Balyasny, which holds a $28.8 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Ken Heebner's Capital Growth Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Gratia Capital allocated the biggest weight to M/I Homes Inc (NYSE:MHO), around 14.21% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, dishing out 2.8 percent of its 13F equity portfolio to MHO.
Now, specific money managers were breaking ground themselves. Capital Growth Management, managed by Ken Heebner, initiated the most outsized position in M/I Homes Inc (NYSE:MHO). Capital Growth Management had $15.2 million invested in the company at the end of the quarter. Brian C. Freckmann's Lyon Street Capital also initiated a $0.5 million position during the quarter. The other funds with brand new MHO positions are Israel Englander's Millennium Management and Joel Greenblatt's Gotham Asset Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as M/I Homes Inc (NYSE:MHO) but similarly valued. These stocks are Livent Corporation (NYSE:LTHM), The Providence Service Corporation (NASDAQ:PRSC), Glu Mobile Inc. (NASDAQ:GLUU), Capitol Federal Financial, Inc. (NASDAQ:CFFN), Coherus Biosciences Inc (NASDAQ:CHRS), Piper Sandler Companies (NYSE:PIPR), and Service Properties Trust (NASDAQ:SVC). All of these stocks' market caps match MHO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LTHM,20,61214,1 PRSC,15,320755,3 GLUU,26,169466,-9 CFFN,14,80710,3 CHRS,24,224914,-2 PIPR,14,45238,1 SVC,15,79288,-6 Average,18.3,140226,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $116 million in MHO's case. Glu Mobile Inc. (NASDAQ:GLUU) is the most popular stock in this table. On the other hand Capitol Federal Financial, Inc. (NASDAQ:CFFN) is the least popular one with only 14 bullish hedge fund positions. M/I Homes Inc (NYSE:MHO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MHO is 51.7. 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 negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately MHO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MHO investors were disappointed as the stock returned -4.9% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.