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Hedge Funds Never Been This Bullish On NVR, Inc. (NVR)

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 NVR, Inc. (NYSE:NVR) at the end of the second quarter and determine whether the smart money was really smart about this stock.

NVR, Inc. (NYSE:NVR) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. NVR investors should pay attention to an increase in hedge fund sentiment in recent months. There were 34 hedge funds in our database with NVR positions at the end of the first quarter. Our calculations also showed that NVR 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 financial world there are numerous methods investors put to use to analyze stocks. Some of the less known methods are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best investment managers can outclass the market by a solid margin (see the details here).

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

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 junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s check out the latest hedge fund action encompassing NVR, Inc. (NYSE:NVR).

How are hedge funds trading NVR, Inc. (NYSE:NVR)?

Heading into the third quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in NVR a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in NVR, Inc. (NYSE:NVR) was held by Diamond Hill Capital, which reported holding $322.8 million worth of stock at the end of September. It was followed by Impala Asset Management with a $77.9 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Falcon Edge Capital. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to NVR, Inc. (NYSE:NVR), around 8.92% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, setting aside 8.43 percent of its 13F equity portfolio to NVR.

As one would reasonably expect, some big names have jumped into NVR, Inc. (NYSE:NVR) headfirst. Ogborne Capital, managed by Mike Ogborne, created the most outsized position in NVR, Inc. (NYSE:NVR). Ogborne Capital had $17.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $13.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Clint Carlson’s Carlson Capital, and John Ku’s Manor Road Capital Partners.

Let’s now take a look at hedge fund activity in other stocks similar to NVR, Inc. (NYSE:NVR). These stocks are HEICO Corporation (NYSE:HEI), Alliant Energy Corporation (NASDAQ:LNT), Extra Space Storage, Inc. (NYSE:EXR), IDEX Corporation (NYSE:IEX), KeyCorp (NYSE:KEY), POSCO (NYSE:PKX), and NICE Ltd (NASDAQ:NICE). This group of stocks’ market caps match NVR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HEI 46 667415 7
LNT 23 377241 -7
EXR 27 176001 11
IEX 31 575412 -2
KEY 37 212865 -6
PKX 10 49629 -1
NICE 19 489930 -3
Average 27.6 364070 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $940 million in NVR’s case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 10 bullish hedge fund positions. NVR, Inc. (NYSE:NVR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVR is 80.3. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on NVR as the stock returned 27.9% since Q2 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.