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Meritage Homes Corp (MTH): Hedge Funds Taking Some Chips Off The Table

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 first 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 4.5 years and analyze what the smart money thinks of Meritage Homes Corp (NYSE:MTH) based on that data.

Is Meritage Homes Corp (NYSE:MTH) a healthy stock for your portfolio? The best stock pickers are becoming less confident. The number of bullish hedge fund bets shrunk by 7 lately. Our calculations also showed that MTH isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

CAPITAL GROWTH MANAGEMENT

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the latest hedge fund action regarding Meritage Homes Corp (NYSE:MTH).

How are hedge funds trading Meritage Homes Corp (NYSE:MTH)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in MTH a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is MTH A Good Stock To Buy?

Among these funds, Fisher Asset Management held the most valuable stake in Meritage Homes Corp (NYSE:MTH), which was worth $43.4 million at the end of the third quarter. On the second spot was Capital Growth Management which amassed $33.4 million worth of shares. Millennium 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 4.69% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, dishing out 0.26 percent of its 13F equity portfolio to MTH.

Judging by the fact that Meritage Homes Corp (NYSE:MTH) has witnessed falling interest from hedge fund managers, we can see that there exists a select few fund managers that slashed their positions entirely in the first quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, valued at about $2.6 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $2.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Meritage Homes Corp (NYSE:MTH). These stocks are Hilltop Holdings Inc. (NYSE:HTH), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), CSG Systems International, Inc. (NASDAQ:CSGS), and InterDigital, Inc. (NASDAQ:IDCC). This group of stocks’ market caps resemble MTH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HTH 15 58772 -4
SAIL 21 204302 -4
CSGS 19 170275 -4
IDCC 23 289642 -4
Average 19.5 180748 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $155 million in MTH’s case. InterDigital, Inc. (NASDAQ:IDCC) is the most popular stock in this table. On the other hand Hilltop Holdings Inc. (NYSE:HTH) 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 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on MTH as the stock returned 105.3% in Q2 (through June 10th) 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.