Should I Avoid Tri Pointe Homes, Inc. (TPH)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Tri Pointe Homes, Inc. (NYSE:TPH).

Is Tri Pointe Homes, Inc. (NYSE:TPH) the right investment to pursue these days? The smart money was turning less bullish. The number of bullish hedge fund positions shrunk by 2 in recent months. Tri Pointe Homes, Inc. (NYSE:TPH) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistic is 32. Our calculations also showed that TPH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 26 hedge funds in our database with TPH holdings at the end of March.

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to take a peek at the new hedge fund action surrounding Tri Pointe Homes, Inc. (NYSE:TPH).

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

At second quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2020. By comparison, 31 hedge funds held shares or bullish call options in TPH a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in Tri Pointe Homes, Inc. (NYSE:TPH). AQR Capital Management has a $49.1 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $19.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other peers that hold long positions consist of D. E. Shaw’s D E Shaw, Ken Fisher’s Fisher Asset Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Factorial Partners allocated the biggest weight to Tri Pointe Homes, Inc. (NYSE:TPH), around 0.84% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, earmarking 0.66 percent of its 13F equity portfolio to TPH.

Judging by the fact that Tri Pointe Homes, Inc. (NYSE:TPH) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds who sold off their full holdings last quarter. It’s worth mentioning that Greg Poole’s Echo Street Capital Management sold off the largest stake of the 750 funds tracked by Insider Monkey, totaling about $3.7 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund dropped about $3.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Tri Pointe Homes, Inc. (NYSE:TPH). These stocks are Sanmina Corporation (NASDAQ:SANM), Arbor Realty Trust, Inc. (NYSE:ABR), Axsome Therapeutics, Inc. (NASDAQ:AXSM), Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), Micro Focus Intl PLC (NYSE:MFGP), The Duckhorn Portfolio, Inc. (NYSE:NAPA), and MorphoSys AG (NASDAQ:MOR). This group of stocks’ market values resemble TPH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SANM 21 128951 5
ABR 18 109314 -3
AXSM 17 430244 0
SHI 5 13771 1
MFGP 7 13496 0
NAPA 16 120355 -2
MOR 2 6487 0
Average 12.3 117517 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $153 million in TPH’s case. Sanmina Corporation (NASDAQ:SANM) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Tri Pointe Homes, Inc. (NYSE:TPH) is more popular among hedge funds. Our overall hedge fund sentiment score for TPH is 75.5. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 24% in 2021 through October 22nd but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on TPH as the stock returned 14.5% since the end of June (through 10/22) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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