Anabatic Fund recently released its Q4 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -11.7% in 2020 (net of fees) compared to the S&P 500 Index which returned 16.3% in the same period. You should check out Anabatic Fund’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.
In the Q4 2020 Investor Letter, Anabatic Fund highlighted a few stocks and NVR Inc (NYSE:NVR) is one of them. NVR Inc (NYSE:NVR) is a home construction company. In the last three months, NVR Inc (NYSE:NVR) stock gained 14.5% and on January 26th it had a closing price of $4,545.72. Here is what Anabatic Fund said:
“NVR, Inc. (NVR) was a new investment in late 2020. NVR is a homebuilder that uses a slight twist in strategy to outperform its peers. Instead of buying land outright, it uses options to acquire the rights to land it may need in the future. Other homebuilders have slowly come around to this improvement in their strategy, but few do it as well or to the same extent as NVR.
The resulting returns on capital that NVR earns are impressive. Over the last five years NVR has averaged a 20% return on assets, a 38% ROE, and a return on invested capital of more than 25%.26 The company’s operating margin improved from 10% to more than 12%, and free cash flow has more than tripled from its 2012-2015 average.
The key question, then, is whether those historical figures mean anything about the future. Those results were achieved with a modest tailwind – industry conditions were up and down but mostly helpful – as sales grew at a rate of more than 10% per year. Those benign conditions should persist, and they may well improve further. Demographics are favorable, demand is in-line with or ahead of supply, and mortgage rates and the overall lending environment should be supportive. In any given year the mortgage market, spending patterns, affordability, or even more natural disasters could play a role, but the overall picture is encouraging.
At least as important is the qualitative aspect of management’s strategy. NVR has proven more than capable in responding to disasters like the housing and financial crisis of a decade ago and the recent pandemic. The company carries a significant cash balance, understands risk, and has a thoughtful approach to capital allocation.
The crux of our investment thesis is that this is a well-managed company, at a reasonable price, entering a favorable period for its core business. Precise forecasts of the industry are impossible, but within any range of reasonable multi-year outcomes NVR should do well.28 That may sound boring, but many successful investments sound boring at first. NVR is a good, growing business, and with patience there is reason for optimism.”
In Q3 2020, the number of bullish hedge fund positions on NVR Inc (NYSE:NVR) stock increased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in NVR’s growth potential. Our calculations showed that NVR Inc (NYSE:NVR) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.