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Hovnanian Enterprises, Inc. (HOV): Hedge Funds Cashing Out

In this article you are going to find out whether hedge funds think Hovnanian Enterprises, Inc. (NYSE:HOV) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Hovnanian Enterprises, Inc. (NYSE:HOV) the right pick for your portfolio? Money managers are becoming less confident. The number of long hedge fund bets fell by 2 lately. Our calculations also showed that HOV isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). HOV was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. There were 7 hedge funds in our database with HOV holdings at the end of the previous quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Hovnanian Enterprises, Inc. (NYSE:HOV).

How have hedgies been trading Hovnanian Enterprises, Inc. (NYSE:HOV)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in HOV a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HOV A Good Stock To Buy?

The largest stake in Hovnanian Enterprises, Inc. (NYSE:HOV) was held by Luxor Capital Group, which reported holding $2.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $1.7 million position. Other investors bullish on the company included Angelo Gordon & Co, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position Angelo Gordon & Co allocated the biggest weight to Hovnanian Enterprises, Inc. (NYSE:HOV), around 0.08% of its 13F portfolio. Luxor Capital Group is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to HOV.

Judging by the fact that Hovnanian Enterprises, Inc. (NYSE:HOV) has faced falling interest from the aggregate hedge fund industry, we can see that there were a few hedge funds that slashed their entire stakes last quarter. It’s worth mentioning that Eduardo Abush’s Waterfront Capital Partners dumped the largest stake of all the hedgies monitored by Insider Monkey, valued at close to $2.5 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $0.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Hovnanian Enterprises, Inc. (NYSE:HOV). We will take a look at Zovio Inc. (NASDAQ:ZVO), Perma-Pipe International Holdings, Inc. (NASDAQ:PPIH), Bellerophon Therapeutics, Inc. (NASDAQ:BLPH), and Kentucky First Federal Bancorp (NASDAQ:KFFB). This group of stocks’ market valuations are similar to HOV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZVO 8 12673 -4
PPIH 2 5111 -1
BLPH 4 8729 2
KFFB 1 410 0
Average 3.75 6731 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $6 million in HOV’s case. Zovio Inc. (NASDAQ:ZVO) is the most popular stock in this table. On the other hand Kentucky First Federal Bancorp (NASDAQ:KFFB) is the least popular one with only 1 bullish hedge fund positions. Hovnanian Enterprises, Inc. (NYSE:HOV) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on HOV as the stock returned 98.4% in Q2 (through the end of May) 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.