LGI Homes Inc (LGIH): Are Hedge Funds Right About This Stock?

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 LGI Homes Inc (NASDAQ:LGIH).

LGI Homes Inc (NASDAQ:LGIH) was in 12 hedge funds’ portfolios at the end of the third quarter of 2018. LGIH investors should pay attention to an increase in enthusiasm from smart money of late. There were 10 hedge funds in our database with LGIH holdings at the end of the previous quarter. Our calculations also showed that lgih isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.


Let’s take a look at the latest hedge fund action surrounding LGI Homes Inc (NASDAQ:LGIH).

What have hedge funds been doing with LGI Homes Inc (NASDAQ:LGIH)?

Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LGIH over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with LGIH Positions

More specifically, Capital Growth Management was the largest shareholder of LGI Homes Inc (NASDAQ:LGIH), with a stake worth $22.3 million reported as of the end of September. Trailing Capital Growth Management was DC Capital Partners, which amassed a stake valued at $14.2 million. Steamboat Capital Partners, Marshall Wace LLP, and PDT Partners were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, key money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the largest position in LGI Homes Inc (NASDAQ:LGIH). Marshall Wace LLP had $4.9 million invested in the company at the end of the quarter. Robert Hockett’s Covalent Capital Partners also initiated a $1.6 million position during the quarter. The other funds with brand new LGIH positions are Mike Vranos’s Ellington, Israel Englander’s Millennium Management, and Phil Frohlich’s Prescott Group Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LGI Homes Inc (NASDAQ:LGIH) but similarly valued. We will take a look at Live Oak Bancshares Inc (NASDAQ:LOB), Renewable Energy Group Inc (NASDAQ:REGI), Stewart Information Services Corp (NYSE:STC), and The Andersons, Inc. (NASDAQ:ANDE). All of these stocks’ market caps are closest to LGIH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOB 8 78368 -1
REGI 21 82905 8
STC 20 148447 0
ANDE 8 62037 0
Average 14.25 92939 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $65 million in LGIH’s case. Renewable Energy Group Inc (NASDAQ:REGI) is the most popular stock in this table. On the other hand Live Oak Bancshares Inc (NASDAQ:LOB) is the least popular one with only 8 bullish hedge fund positions. LGI Homes Inc (NASDAQ:LGIH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard REGI might be a better candidate to consider a long position.

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