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Were Hedge Funds Right About Betting On Lennar Corporation (LEN)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Lennar Corporation (NYSE:LEN) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Lennar Corporation (NYSE:LEN) undervalued? The best stock pickers are in a bullish mood. The number of long hedge fund bets advanced by 4 recently. Our calculations also showed that LEN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). LEN was in 63 hedge funds’ portfolios at the end of December. There were 59 hedge funds in our database with LEN holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a peek at the latest hedge fund action surrounding Lennar Corporation (NYSE:LEN).

How have hedgies been trading Lennar Corporation (NYSE:LEN)?

Heading into the first quarter of 2020, a total of 63 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 62 hedge funds with a bullish position in LEN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Greenhaven Associates was the largest shareholder of Lennar Corporation (NYSE:LEN), with a stake worth $507.6 million reported as of the end of September. Trailing Greenhaven Associates was Eminence Capital, which amassed a stake valued at $155.7 million. Brave Warrior Capital, D E Shaw, and Miller Value 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 Greenhaven Associates allocated the biggest weight to Lennar Corporation (NYSE:LEN), around 11.32% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, earmarking 10.03 percent of its 13F equity portfolio to LEN.

Consequently, key hedge funds have been driving this bullishness. Renaissance Technologies, assembled the most outsized position in Lennar Corporation (NYSE:LEN). Renaissance Technologies had $36.2 million invested in the company at the end of the quarter. Malcolm Levine’s Dendur Capital also initiated a $13 million position during the quarter. The other funds with brand new LEN positions are Robert B. Gillam’s McKinley Capital Management, Michael Gelband’s ExodusPoint Capital, and Matthew Tewksbury’s Stevens Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Lennar Corporation (NYSE:LEN) but similarly valued. These stocks are Wausau Paper Corp. (NYSE:WPP), Citizens Financial Group Inc (NYSE:CFG), Omnicom Group Inc. (NYSE:OMC), and Concho Resources Inc. (NYSE:CXO). This group of stocks’ market valuations match LEN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPP 7 49982 4
CFG 42 1814103 -1
OMC 22 480889 -5
CXO 39 763574 9
Average 27.5 777137 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $777 million. That figure was $1862 million in LEN’s case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand Wausau Paper Corp. (NYSE:WPP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Lennar Corporation (NYSE:LEN) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on LEN as the stock returned -0.6% so far in Q1 (through March 9th) 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.

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

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