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Hedge Funds Are Betting On Toll Brothers Inc (TOL)

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a fool proof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong some times, as in the case of some of their top picks from the index like Micron and Anadarko. The data though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

Is Toll Brothers Inc (NYSE:TOL) undervalued? Money managers are getting more bullish. The number of long hedge fund positions increased by 1 lately. Toll Brothers Inc (NYSE:TOL) was in 34 hedge funds’ portfolios at the end of the third quarter of 2015. There were 33 hedge funds in our database with Toll Brothers Inc (NYSE:TOL) holdings at the end of the previous quarter. At the end of this article, we will also compare Toll Brothers Inc (NYSE:TOL) to other stocks, including Cadence Design Systems Inc (NASDAQ:CDNS), Middleby Corporation (NASDAQ:MIDD), and UGI Corp (NYSE:UGI) to get a better sense of its popularity.

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To most stock holders, hedge funds are viewed as worthless, old investment tools of the past. While there are more than 8000 funds with their doors open at present, We look at the bigwigs of this group, around 700 funds. Most estimates calculate that this group of people administers most of the hedge fund industry’s total asset base, and by shadowing their finest picks, Insider Monkey has spotted a few investment strategies that have historically outperformed the broader indices. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, let’s take a gander at the key action encompassing Toll Brothers Inc (NYSE:TOL).

What have hedge funds been doing with Toll Brothers Inc (NYSE:TOL)?

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Heebner’s Capital Growth Management has the number one position in Toll Brothers Inc (NYSE:TOL), worth close to $215.7 million, comprising 7% of its total 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $128.9 million position; 0.1% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism contain Dmitry Balyasny’s Balyasny Asset Management, David Harding’s Winton Capital Management, and Bruce Kovner’s Caxton Associates LP.

As one would reasonably expect, some big names have jumped into Toll Brothers Inc (NYSE:TOL) headfirst. Columbus Circle Investors, managed by Clifford Fox, created the most valuable position in Toll Brothers Inc (NYSE:TOL). Columbus Circle Investors had $10.1 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $7.7 million investment in the stock during the quarter. The other funds with brand new TOL positions are Benjamin A. Smith’s Laurion Capital Management, Philip Hempleman’s Ardsley Partners, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Toll Brothers Inc (NYSE:TOL). These stocks are Cadence Design Systems Inc (NASDAQ:CDNS), Middleby Corporation (NASDAQ:MIDD), UGI Corp (NYSE:UGI), and Reinsurance Group of America Inc (NYSE:RGA). This group of stocks’ market valuations is closest to Toll Brothers Inc (NYSE:TOL)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CDNS 28 1483917 -3
MIDD 20 566957 -3
UGI 16 348448 -2
RGA 16 302110 -2

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 $675 million. That figure was $646 million in Toll Brothers Inc (NYSE:TOL)’s case. Cadence Design Systems Inc (NASDAQ:CDNS) is the most popular stock in this table. On the other hand, UGI Corp (NYSE:UGI) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks, Toll Brothers Inc (NYSE:TOL) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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