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Hedge Funds Have Never Been This Bullish On William Lyon Homes (WLH)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 752 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 September 30th. In this article we look at what those investors think of William Lyon Homes (NYSE:WLH).

William Lyon Homes (NYSE:WLH) was in 29 hedge funds’ portfolios at the end of the third quarter of 2019. WLH investors should pay attention to an increase in enthusiasm from smart money lately. There were 24 hedge funds in our database with WLH holdings at the end of the previous quarter. Our calculations also showed that WLH 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Miller

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. We’re going to check out the fresh hedge fund action regarding William Lyon Homes (NYSE:WLH).

How are hedge funds trading William Lyon Homes (NYSE:WLH)?

Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the second quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in WLH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

WLH_dec2019

According to Insider Monkey’s hedge fund database, John Khoury’s Long Pond Capital has the biggest position in William Lyon Homes (NYSE:WLH), worth close to $64.9 million, amounting to 1.7% of its total 13F portfolio. On Long Pond Capital’s heels is Miller Value Partners, led by Bill Miller, holding a $16.5 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining peers with similar optimism contain Matthew Lindenbaum’s Basswood Capital, Chuck Royce’s Royce & Associates and Jeffrey Hinkle’s Shoals Capital Management. In terms of the portfolio weights assigned to each position Shoals Capital Management allocated the biggest weight to William Lyon Homes (NYSE:WLH), around 11.9% of its portfolio. Gratia Capital is also relatively very bullish on the stock, earmarking 3.65 percent of its 13F equity portfolio to WLH.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Shoals Capital Management, managed by Jeffrey Hinkle, established the most valuable position in William Lyon Homes (NYSE:WLH). Shoals Capital Management had $8.7 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $3.6 million position during the quarter. The following funds were also among the new WLH investors: Emanuel J. Friedman’s EJF Capital, Ken Griffin’s Citadel Investment Group, and Donald Sussman’s Paloma Partners.

Let’s go over hedge fund activity in other stocks similar to William Lyon Homes (NYSE:WLH). These stocks are PetIQ, Inc. (NASDAQ:PETQ), Axonics Modulation Technologies, Inc. (NASDAQ:AXNX), Virtus Investment Partners Inc (NASDAQ:VRTS), and Forestar Group Inc. (NYSE:FOR). This group of stocks’ market valuations match WLH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PETQ 16 96449 3
AXNX 11 93838 -1
VRTS 16 94591 -1
FOR 15 99738 11
Average 14.5 96154 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $164 million in WLH’s case. PetIQ, Inc. (NASDAQ:PETQ) is the most popular stock in this table. On the other hand Axonics Modulation Technologies, Inc. (NASDAQ:AXNX) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks William Lyon Homes (NYSE:WLH) is more popular among hedge funds. 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 WLH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WLH were disappointed as the stock returned 2.6% 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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