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PulteGroup, Inc. (PHM) vs. Top 20 Hedge Fund Stocks in 2019

Nina Todic

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about PulteGroup, Inc. (NYSE:PHM)?

PulteGroup, Inc. (NYSE:PHM) was in 28 hedge funds' portfolios at the end of the third quarter of 2019. PHM investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. There were 31 hedge funds in our database with PHM positions at the end of the previous quarter. Our calculations also showed that PHM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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. 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 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 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.

[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to take a peek at the fresh hedge fund action encompassing PulteGroup, Inc. (NYSE:PHM).

How have hedgies been trading PulteGroup, Inc. (NYSE:PHM)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in PHM a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

The largest stake in PulteGroup, Inc. (NYSE:PHM) was held by AQR Capital Management, which reported holding $329.7 million worth of stock at the end of September. It was followed by Greenhaven Associates with a $133.9 million position. Other investors bullish on the company included GLG Partners, Samlyn Capital, and Miller Value Partners. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to PulteGroup, Inc. (NYSE:PHM), around 2.71% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, designating 2.14 percent of its 13F equity portfolio to PHM.

Due to the fact that PulteGroup, Inc. (NYSE:PHM) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there were a few funds who sold off their entire stakes by the end of the third quarter. Interestingly, Bruce Kovner's Caxton Associates said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, valued at close to $7.8 million in stock, and Ken Heebner's Capital Growth Management was right behind this move, as the fund sold off about $2.8 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as PulteGroup, Inc. (NYSE:PHM) but similarly valued. These stocks are NRG Energy Inc (NYSE:NRG), EPAM Systems Inc (NYSE:EPAM), Carvana Co. (NYSE:CVNA), and Booz Allen Hamilton Holding Corporation (NYSE:BAH). This group of stocks' market caps are similar to PHM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NRG,46,1482443,4 EPAM,24,286367,1 CVNA,48,2000888,3 BAH,33,469671,2 Average,37.75,1059842,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $1060 million. That figure was $826 million in PHM's case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand EPAM Systems Inc (NYSE:EPAM) is the least popular one with only 24 bullish hedge fund positions. PulteGroup, Inc. (NYSE:PHM) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on PHM as the stock returned 51.7% in 2019 through December 23rd and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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