Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Hovnanian Enterprises, Inc. (NYSE:HOV) from the perspective of those successful funds.
Hovnanian Enterprises, Inc. (NYSE:HOV) investors should pay attention to an increase in hedge fund sentiment of late. HOV was in 10 hedge funds’ portfolios at the end of the third quarter of 2016. There were 9 hedge funds in our database with HOV positions at the end of the previous quarter. At the end of this article we will also compare HOV to other stocks including Trinity Place Holdings Inc. (NYSE:TPHS), BankFinancial Corporation (NASDAQ:BFIN), and Capital City Bank Group, Inc. (NASDAQ:CCBG) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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What have hedge funds been doing with Hovnanian Enterprises, Inc. (NYSE:HOV)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a gain of 11% from the second quarter of 2016. By comparison, 10 hedge funds held shares or bullish call options in HOV heading into this year, so sentiment is flat in 2016. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Marc Lasry’s Avenue Capital has the most valuable position in Hovnanian Enterprises, Inc. (NYSE:HOV), worth close to $6.3 million, amounting to 1.3% of its total 13F portfolio. The second most bullish fund manager is Michael Barnes and Arif Inayatullah of Tricadia Capital Management which holds a $4.8 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass Ken Griffin’s Citadel Investment Group, Russell Lucas’ Lucas Capital Management, and Joshua Packwood and Schuster Tanger’s Radix Partners. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Consequently, key money managers were breaking ground themselves. Radix Partners established the biggest position in Hovnanian Enterprises, Inc. (NYSE:HOV). Radix Partners had $0.4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock was Millennium Management, one of the 10 largest hedge funds in the world.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Hovnanian Enterprises, Inc. (NYSE:HOV) but similarly valued. These stocks are Trinity Place Holdings Inc. (NYSE:TPHS), BankFinancial Corporation (NASDAQ:BFIN), Capital City Bank Group, Inc. (NASDAQ:CCBG), and Regional Management Corp (NYSE:RM). This group of stocks’ market valuations resemble HOV’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPHS | 4 | 83372 | 0 |
| BFIN | 4 | 9775 | -1 |
| CCBG | 3 | 2909 | 0 |
| RM | 16 | 80750 | 3 |
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $13 million in HOV’s case. Regional Management Corp (NYSE:RM) is the most popular stock in this table. On the other hand Capital City Bank Group, Inc. (NASDAQ:CCBG) is the least popular one with only 3 bullish hedge fund positions. Hovnanian Enterprises, Inc. (NYSE:HOV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RM might be a better candidate to consider taking a long position in.
Disclosure: None
