We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Lennar Corporation (NYSE:LEN).
Is LEN stock a buy or sell? Lennar Corporation (NYSE:LEN) investors should pay attention to a decrease in hedge fund interest lately. Lennar Corporation (NYSE:LEN) was in 52 hedge funds’ portfolios at the end of December. The all time high for this statistic is 66. There were 60 hedge funds in our database with LEN positions at the end of the third quarter. Our calculations also showed that LEN isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 (or at the end of this article). Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding Lennar Corporation (NYSE:LEN).
Do Hedge Funds Think LEN Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the third quarter of 2020. On the other hand, there were a total of 63 hedge funds with a bullish position in LEN a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Lennar Corporation (NYSE:LEN) was held by Greenhaven Associates, which reported holding $575.1 million worth of stock at the end of December. It was followed by Eminence Capital with a $155.5 million position. Other investors bullish on the company included Theleme Partners, Fisher Asset Management, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Lennar Corporation (NYSE:LEN), around 10.83% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, dishing out 4.13 percent of its 13F equity portfolio to LEN.
Since Lennar Corporation (NYSE:LEN) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers that slashed their entire stakes last quarter. It’s worth mentioning that Bill Miller’s Miller Value Partners cut the largest position of the 750 funds tracked by Insider Monkey, worth an estimated $44.6 million in stock, and Stanley Druckenmiller’s Duquesne Capital was right behind this move, as the fund sold off about $15.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 8 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Lennar Corporation (NYSE:LEN). These stocks are Valero Energy Corporation (NYSE:VLO), KKR & Co Inc. (NYSE:KKR), ViacomCBS Inc. (NASDAQ:VIAC), Ameriprise Financial, Inc. (NYSE:AMP), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), Garmin Ltd. (NASDAQ:GRMN), and Ryanair Holdings plc (NASDAQ:RYAAY). This group of stocks’ market valuations resemble LEN’s market valuation.
|Ticker||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 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1186 million. That figure was $1530 million in LEN’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand Ryanair Holdings plc (NASDAQ:RYAAY) is the least popular one with only 23 bullish hedge fund positions. Lennar Corporation (NYSE:LEN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LEN is 67.4. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on LEN as the stock returned 25.1% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Lennar Corp W (NYSE:LEN, LEN.B)
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Disclosure: None. This article was originally published at Insider Monkey.