Is Meritage Homes Corp (MTH) Going to Burn These Hedge Funds?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Meritage Homes Corp (NYSE:MTH) based on that data and determine whether they were really smart about the stock.

Meritage Homes Corp (NYSE:MTH) was in 28 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. MTH has experienced an increase in hedge fund sentiment in recent months. There were 22 hedge funds in our database with MTH holdings at the end of March. Our calculations also showed that MTH 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 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Ken Heebner of Capital Growth Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 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. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to analyze the recent hedge fund action surrounding Meritage Homes Corp (NYSE:MTH).

What does smart money think about Meritage Homes Corp (NYSE:MTH)?

At Q2’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from the first quarter of 2020. On the other hand, there were a total of 15 hedge funds with a bullish position in MTH 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.

Among these funds, Fisher Asset Management held the most valuable stake in Meritage Homes Corp (NYSE:MTH), which was worth $107.2 million at the end of the third quarter. On the second spot was Capital Growth Management which amassed $60.1 million worth of shares. Echo Street Capital Management, Arrowstreet Capital, and GLG Partners 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 Capital Growth Management allocated the biggest weight to Meritage Homes Corp (NYSE:MTH), around 6.99% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, dishing out 1.06 percent of its 13F equity portfolio to MTH.

As one would reasonably expect, some big names were leading the bulls’ herd. Scopus Asset Management, managed by Alexander Mitchell, assembled the most valuable position in Meritage Homes Corp (NYSE:MTH). Scopus Asset Management had $16.4 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider’s SG Capital Management also initiated a $5.7 million position during the quarter. The other funds with new positions in the stock are Eduardo Abush’s Waterfront Capital Partners, Anand Parekh’s Alyeska Investment Group, and Edgar Wachenheim’s Greenhaven Associates.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Meritage Homes Corp (NYSE:MTH) but similarly valued. We will take a look at CarGurus, Inc. (NASDAQ:CARG), The Howard Hughes Corporation (NYSE:HHC), NuVasive, Inc. (NASDAQ:NUVA), Shift4 Payments, Inc. (NYSE:FOUR), Univar Solutions Inc (NYSE:UNVR), National Beverage Corp. (NASDAQ:FIZZ), and Corporate Office Properties Trust (NYSE:OFC). This group of stocks’ market valuations match MTH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CARG 31 411397 5
HHC 28 765597 4
NUVA 33 484596 9
FOUR 15 72444 15
UNVR 31 920084 -1
FIZZ 21 259591 1
OFC 20 209407 3
Average 25.6 446159 5.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $446 million. That figure was $346 million in MTH’s case. NuVasive, Inc. (NASDAQ:NUVA) is the most popular stock in this table. On the other hand Shift4 Payments, Inc. (NYSE:FOUR) is the least popular one with only 15 bullish hedge fund positions. Meritage Homes Corp (NYSE:MTH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MTH is 75.1. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on MTH as the stock returned 34% during Q3 (through September 25th) 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.