Is TOL A Good Stock To Buy Now?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Toll Brothers Inc (NYSE:TOL).

Is TOL a good stock to buy now? Toll Brothers Inc (NYSE:TOL) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 39 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that TOL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare TOL to other stocks including WEX Inc (NYSE:WEX), Ciena Corporation (NASDAQ:CIEN), and Arrow Electronics, Inc. (NYSE:ARW) to get a better sense of its popularity.

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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let’s check out the recent hedge fund action regarding Toll Brothers Inc (NYSE:TOL).

Do Hedge Funds Think TOL Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in TOL a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is TOL A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Edgar Wachenheim’s Greenhaven Associates has the number one position in Toll Brothers Inc (NYSE:TOL), worth close to $257.5 million, corresponding to 5.7% of its total 13F portfolio. The second largest stake is held by Ricky Sandler of Eminence Capital, with a $85.9 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism contain Ken Heebner’s Capital Growth Management, Greg Poole’s Echo Street Capital Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Toll Brothers Inc (NYSE:TOL), around 5.66% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, setting aside 4.73 percent of its 13F equity portfolio to TOL.

Judging by the fact that Toll Brothers Inc (NYSE:TOL) has faced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that slashed their positions entirely last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $6 million in stock. Louis Bacon’s fund, Moore Global Investments, also sold off its stock, about $3.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Toll Brothers Inc (NYSE:TOL) but similarly valued. These stocks are WEX Inc (NYSE:WEX), Ciena Corporation (NASDAQ:CIEN), Arrow Electronics, Inc. (NYSE:ARW), Bruker Corporation (NASDAQ:BRKR), Proofpoint Inc (NASDAQ:PFPT), Natera Inc (NASDAQ:NTRA), and Robert Half International Inc. (NYSE:RHI). This group of stocks’ market valuations are similar to TOL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WEX 26 288327 2
CIEN 29 157976 -3
ARW 28 651619 -1
BRKR 31 154882 3
PFPT 37 489399 2
NTRA 43 932118 8
RHI 29 272365 1
Average 31.9 420955 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $421 million. That figure was $707 million in TOL’s case. Natera Inc (NASDAQ:NTRA) is the most popular stock in this table. On the other hand WEX Inc (NYSE:WEX) is the least popular one with only 26 bullish hedge fund positions. Toll Brothers Inc (NYSE:TOL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TOL is 73.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately TOL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TOL were disappointed as the stock returned -4.7% since the end of September (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Follow Toll Brothers Inc. (NYSE:TOL)

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Disclosure: None. This article was originally published at Insider Monkey.