Hedge Funds Have Never Been This Bullish On LGI Homes Inc (LGIH)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought LGI Homes Inc (NASDAQ:LGIH) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

LGI Homes Inc (NASDAQ:LGIH) has seen an increase in support from the world’s most elite money managers of late. LGI Homes Inc (NASDAQ:LGIH) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LGIH 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.

In the eyes of most market participants, hedge funds are viewed as worthless, outdated investment vehicles of the past. While there are over 8000 funds trading today, Our researchers choose to focus on the moguls of this club, around 850 funds. These investment experts have their hands on most of the smart money’s total capital, and by following their matchless equity investments, Insider Monkey has spotted several investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ken Heebner of Capital Growth Management

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. Keeping this in mind let’s check out the key hedge fund action regarding LGI Homes Inc (NASDAQ:LGIH).

What does smart money think about LGI Homes Inc (NASDAQ:LGIH)?

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 57% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LGIH over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Capital Growth Management was the largest shareholder of LGI Homes Inc (NASDAQ:LGIH), with a stake worth $33.5 million reported as of the end of September. Trailing Capital Growth Management was Driehaus Capital, which amassed a stake valued at $15.7 million. Royce & Associates, Harspring Capital Management, and Voss 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 DC Capital Partners allocated the biggest weight to LGI Homes Inc (NASDAQ:LGIH), around 8.34% of its 13F portfolio. Voss Capital is also relatively very bullish on the stock, setting aside 4.89 percent of its 13F equity portfolio to LGIH.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Harspring Capital Management, managed by Harry Gail, initiated the most outsized position in LGI Homes Inc (NASDAQ:LGIH). Harspring Capital Management had $11.6 million invested in the company at the end of the quarter. Travis Cocke’s Voss Capital also initiated a $7.3 million position during the quarter. The following funds were also among the new LGIH investors: Noam Gottesman’s GLG Partners, Blair Baker’s Precept Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s go over hedge fund activity in other stocks similar to LGI Homes Inc (NASDAQ:LGIH). We will take a look at ESCO Technologies Inc. (NYSE:ESE), Cleveland-Cliffs Inc (NYSE:CLF), Progyny, Inc. (NASDAQ:PGNY), Primo Water Corporation (NYSE:PRMW), Shake Shack Inc (NYSE:SHAK), New Fortress Energy Inc. (NASDAQ:NFE), and Kennedy-Wilson Holdings Inc (NYSE:KW). This group of stocks’ market caps are similar to LGIH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESE 7 69080 -1
CLF 25 161525 2
PGNY 19 64397 9
PRMW 31 624565 -5
SHAK 22 458714 0
NFE 5 24818 3
KW 14 350773 -8
Average 17.6 250553 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.6 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $108 million in LGIH’s case. Primo Water Corporation (NYSE:PRMW) is the most popular stock in this table. On the other hand New Fortress Energy Inc. (NASDAQ:NFE) is the least popular one with only 5 bullish hedge fund positions. LGI Homes Inc (NASDAQ:LGIH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LGIH is 72.7. 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 third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on LGIH as the stock returned 32% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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