As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about KB Home (NYSE:KBH).
KB Home (NYSE:KBH) has seen a decrease in support from the world’s most elite money managers in recent months. KB Home (NYSE:KBH) was in 24 hedge funds’ portfolios at the end of March. The all time high for this statistic is 29. There were 28 hedge funds in our database with KBH holdings at the end of December. Our calculations also showed that KBH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s analyze the new hedge fund action surrounding KB Home (NYSE:KBH).
Do Hedge Funds Think KBH Is A Good Stock To Buy Now?
At the end of March, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in KBH a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in KB Home (NYSE:KBH), which was worth $121.4 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $62.3 million worth of shares. GLG Partners, AQR Capital Management, and Holocene Advisors 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 Cobalt Capital Management allocated the biggest weight to KB Home (NYSE:KBH), around 4.15% of its 13F portfolio. Verdad Advisers is also relatively very bullish on the stock, designating 2.15 percent of its 13F equity portfolio to KBH.
Because KB Home (NYSE:KBH) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of fund managers that slashed their entire stakes heading into Q2. Interestingly, Robert Bishop’s Impala Asset Management dumped the largest position of the “upper crust” of funds watched by Insider Monkey, valued at about $11.4 million in stock. Valerie Malter’s fund, Matarin Capital, also dumped its stock, about $3.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds heading into Q2.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as KB Home (NYSE:KBH) but similarly valued. We will take a look at Ryman Hospitality Properties, Inc. (NYSE:RHP), Driven Brands Holdings Inc. (NASDAQ:DRVN), Portland General Electric Company (NYSE:POR), PS Business Parks Inc (NYSE:PSB), Chesapeake Energy Corporation (NASDAQ:CHK), Teradata Corporation (NYSE:TDC), and John Bean Technologies Corporation (NYSE:JBT). This group of stocks’ market valuations resemble KBH’s market valuation.
|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 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $448 million. That figure was $359 million in KBH’s case. Chesapeake Energy Corporation (NASDAQ:CHK) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 12 bullish hedge fund positions. KB Home (NYSE:KBH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KBH is 45.8. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately KBH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KBH were disappointed as the stock returned -16.1% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.