At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards American Homes 4 Rent (NYSE:AMH) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is American Homes 4 Rent (NYSE:AMH) a bargain? Hedge funds were taking an optimistic view. The number of long hedge fund positions went up by 2 in recent months. American Homes 4 Rent (NYSE:AMH) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 27. Our calculations also showed that AMH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 21 hedge funds in our database with AMH positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are dozens of tools stock market investors put to use to appraise publicly traded companies. A pair of the most underrated tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top money managers can outpace the broader indices by a significant margin (see the details here).
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a peek at the recent hedge fund action surrounding American Homes 4 Rent (NYSE:AMH).
What does smart money think about American Homes 4 Rent (NYSE:AMH)?
At second quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AMH over the last 20 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Echo Street Capital Management, managed by Greg Poole, holds the number one position in American Homes 4 Rent (NYSE:AMH). Echo Street Capital Management has a $99.9 million position in the stock, comprising 1.2% of its 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $27.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain John Overdeck and David Siegel’s Two Sigma Advisors, Ken Heebner’s Capital Growth Management and Jonathan Litt’s Land & Buildings Investment Management. In terms of the portfolio weights assigned to each position Land & Buildings Investment Management allocated the biggest weight to American Homes 4 Rent (NYSE:AMH), around 3.63% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, setting aside 1.78 percent of its 13F equity portfolio to AMH.
Now, key hedge funds have jumped into American Homes 4 Rent (NYSE:AMH) headfirst. Capital Growth Management, managed by Ken Heebner, established the biggest position in American Homes 4 Rent (NYSE:AMH). Capital Growth Management had $15.3 million invested in the company at the end of the quarter. Martin Whitman’s Third Avenue Management also made a $10.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Donald Sussman’s Paloma Partners, and Noam Gottesman’s GLG Partners.
Let’s check out hedge fund activity in other stocks similar to American Homes 4 Rent (NYSE:AMH). These stocks are 58.com Inc (NYSE:WUBA), Whirlpool Corporation (NYSE:WHR), Wynn Resorts, Limited (NASDAQ:WYNN), Guardant Health, Inc. (NASDAQ:GH), Graco Inc. (NYSE:GGG), LKQ Corporation (NASDAQ:LKQ), and Entegris Inc (NASDAQ:ENTG). This group of stocks’ market values are closest to AMH’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $815 million. That figure was $232 million in AMH’s case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand Whirlpool Corporation (NYSE:WHR) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks American Homes 4 Rent (NYSE:AMH) is even less popular than WHR. Our overall hedge fund sentiment score for AMH is 24.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards AMH. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September but managed to beat the market by 19.3 percentage points. Unfortunately AMH wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); AMH investors were disappointed as the stock returned 6.1% in the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.