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2019 Review: Most Favored Hedge Fund Stocks vs. NVR, Inc. (NVR)

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about NVR, Inc. (NYSE:NVR) and compare its performance to hedge funds’ consensus picks in 2019.

Is NVR, Inc. (NYSE:NVR) worth your attention right now? Investors who are in the know are taking an optimistic view. The number of bullish hedge fund bets advanced by 9 in recent months. Our calculations also showed that NVR 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). NVR was in 36 hedge funds’ portfolios at the end of the third quarter of 2019. There were 27 hedge funds in our database with NVR positions at the end of the previous quarter.

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.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

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. Keeping this in mind we’re going to take a gander at the latest hedge fund action encompassing NVR, Inc. (NYSE:NVR).

How are hedge funds trading NVR, Inc. (NYSE:NVR)?

At Q3’s end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in NVR a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the most valuable position in NVR, Inc. (NYSE:NVR). Diamond Hill Capital has a $357.6 million position in the stock, comprising 1.9% of its 13F portfolio. The second largest stake is held by Robert Bishop of Impala Asset Management, with a $136.2 million position; 9.8% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism consist of Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to NVR, Inc. (NYSE:NVR), around 9.85% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 5.36 percent of its 13F equity portfolio to NVR.

As one would reasonably expect, key money managers were leading the bulls’ herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most valuable position in NVR, Inc. (NYSE:NVR). Adage Capital Management had $16 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also initiated a $12.4 million position during the quarter. The following funds were also among the new NVR investors: Louis Bacon’s Moore Global Investments, Paul Tudor Jones’s Tudor Investment Corp, and Matthew Tewksbury’s Stevens Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to NVR, Inc. (NYSE:NVR). We will take a look at Wabtec Corporation (NYSE:WAB), Hologic, Inc. (NASDAQ:HOLX), Sun Communities Inc (NYSE:SUI), and Atmos Energy Corporation (NYSE:ATO). This group of stocks’ market values are closest to NVR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WAB 32 1646949 5
HOLX 33 1018180 1
SUI 15 303237 -5
ATO 19 407896 5
Average 24.75 844066 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $844 million. That figure was $1163 million in NVR’s case. Hologic, Inc. (NASDAQ:HOLX) is the most popular stock in this table. On the other hand Sun Communities Inc (NYSE:SUI) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks NVR, Inc. (NYSE:NVR) is more popular among hedge funds. 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. Hedge funds were also right about betting on NVR as the stock returned 55.4% so far in 2019 (through 12/23) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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