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Hedge Funds Are Crazy About Cavco Industries, Inc. (CVCO)

Is Cavco Industries, Inc. (NASDAQ:CVCO) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Cavco Industries, Inc. (NASDAQ:CVCO) was in 19 hedge funds’ portfolios at the end of September. CVCO has seen an increase in hedge fund sentiment lately. There were 16 hedge funds in our database with CVCO holdings at the end of the previous quarter. Our calculations also showed that CVCO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the key hedge fund action encompassing Cavco Industries, Inc. (NASDAQ:CVCO).

Hedge fund activity in Cavco Industries, Inc. (NASDAQ:CVCO)

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CVCO over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

More specifically, GAMCO Investors was the largest shareholder of Cavco Industries, Inc. (NASDAQ:CVCO), with a stake worth $52.7 million reported as of the end of September. Trailing GAMCO Investors was Broad Bay Capital, which amassed a stake valued at $31.5 million. Renaissance Technologies, Tontine Asset Management, and Intrinsic Edge Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Broad Bay Capital allocated the biggest weight to Cavco Industries, Inc. (NASDAQ:CVCO), around 8.42% of its 13F portfolio. Venator Capital Management is also relatively very bullish on the stock, setting aside 4.39 percent of its 13F equity portfolio to CVCO.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Waratah Capital Advisors, managed by Brad Dunkley and Blair Levinsky, created the most valuable position in Cavco Industries, Inc. (NASDAQ:CVCO). Waratah Capital Advisors had $0.7 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $0.3 million position during the quarter. The other funds with brand new CVCO positions are David E. Shaw’s D E Shaw, Hoon Kim’s Quantinno Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cavco Industries, Inc. (NASDAQ:CVCO) but similarly valued. These stocks are Frontline Ltd (NYSE:FRO), Prestige Consumer Healthcare Inc. (NYSE:PBH), BMC Stock Holdings, Inc. (NASDAQ:BMCH), and Constellium SE (NYSE:CSTM). All of these stocks’ market caps are similar to CVCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FRO 14 99604 1
PBH 17 73601 2
BMCH 27 287010 2
CSTM 43 412365 6
Average 25.25 218145 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $171 million in CVCO’s case. Constellium SE (NYSE:CSTM) is the most popular stock in this table. On the other hand Frontline Ltd (NYSE:FRO) is the least popular one with only 14 bullish hedge fund positions. Cavco Industries, Inc. (NASDAQ:CVCO) is not the least popular stock in this group but hedge fund interest is still below average. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CVCO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CVCO investors were disappointed as the stock returned 4.1% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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