How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding M.D.C. Holdings, Inc. (NYSE:MDC) and determine whether hedge funds had an edge regarding this stock.
M.D.C. Holdings, Inc. (NYSE:MDC) was in 20 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. MDC shareholders have witnessed an increase in hedge fund sentiment recently. There were 14 hedge funds in our database with MDC positions at the end of the first quarter. Our calculations also showed that MDC 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).
Video: 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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
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 real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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 go over the latest hedge fund action encompassing M.D.C. Holdings, Inc. (NYSE:MDC).
How are hedge funds trading M.D.C. Holdings, Inc. (NYSE:MDC)?
At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MDC over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Balyasny Asset Management held the most valuable stake in M.D.C. Holdings, Inc. (NYSE:MDC), which was worth $37.1 million at the end of the third quarter. On the second spot was Capital Growth Management which amassed $13.6 million worth of shares. Greenhaven Associates, Fisher Asset Management, and Royce & Associates 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 Capital Growth Management allocated the biggest weight to M.D.C. Holdings, Inc. (NYSE:MDC), around 1.58% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.52 percent of its 13F equity portfolio to MDC.
With a general bullishness amongst the heavyweights, some big names have jumped into M.D.C. Holdings, Inc. (NYSE:MDC) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in M.D.C. Holdings, Inc. (NYSE:MDC). Balyasny Asset Management had $37.1 million invested in the company at the end of the quarter. Edgar Wachenheim’s Greenhaven Associates also initiated a $6.7 million position during the quarter. The other funds with brand new MDC positions are Israel Englander’s Millennium Management, Brad Farber’s Atika Capital, and Clint Carlson’s Carlson Capital.
Let’s now take a look at hedge fund activity in other stocks similar to M.D.C. Holdings, Inc. (NYSE:MDC). These stocks are The Ensign Group, Inc. (NASDAQ:ENSG), Winnebago Industries, Inc. (NYSE:WGO), Harmony Gold Mining Company Limited (NYSE:HMY), First Hawaiian, Inc. (NASDAQ:FHB), CNO Financial Group Inc (NYSE:CNO), Acadia Healthcare Company Inc (NASDAQ:ACHC), and FormFactor, Inc. (NASDAQ:FORM). This group of stocks’ market caps are closest to MDC’s market cap.
|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 21 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $96 million in MDC’s case. Winnebago Industries, Inc. (NYSE:WGO) is the most popular stock in this table. On the other hand Harmony Gold Mining Company Limited (NYSE:HMY) is the least popular one with only 10 bullish hedge fund positions. M.D.C. Holdings, Inc. (NYSE:MDC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MDC is 61.7. 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. Our calculations showed that top 10 most popular stocks among hedge funds 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 and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on MDC as the stock returned 32.9% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.