It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in KB Home (NYSE:KBH) .
Is KB Home (NYSE:KBH) an exceptional investment today? Prominent investors seem to be taking a bullish view, as among the funds in our database, the number of funds bullish on the stock advanced by two last quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Scholastic Corp (NASDAQ:SCHL), Gannett Co., Inc. (NYSE:GCI), and First Financial Bancorp (NASDAQ:FFBC) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
With all of this in mind, let’s analyze the new action regarding KB Home (NYSE:KBH).
What does the smart money think about KB Home (NYSE:KBH)?
Heading into the fourth quarter of 2016, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, up by 13% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in KBH heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’ AQR Capital Management has the largest position in KB Home (NYSE:KBH), worth close to $79.7 million, comprising 0.1% of its total 13F portfolio. On AQR Capital Management’s heels is Fisher Asset Management, led by Ken Fisher, which holds a $61 million position; the fund has 0.1% of its 13F portfolio invested in the stock. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As industrywide interest jumped, key hedge funds have jumped into KB Home (NYSE:KBH) headfirst. Ken Griffin’s Citadel Investment Group assembled the biggest call position in KB Home (NYSE:KBH). Citadel Investment Group had $2.9 million invested in the company at the end of the quarter. Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital also made a $2.5 million investment in the stock during the quarter. The following funds were also among the new KBH investors: Ken Heebner’s Capital Growth Management, Israel Englander’s Millennium Management, and Steve Cohen’s Point72 Asset Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as KB Home (NYSE:KBH) but similarly valued. We will take a look at Scholastic Corp (NASDAQ:SCHL), Gannett Co., Inc. (NYSE:GCI), First Financial Bancorp (NASDAQ:FFBC), and Qualys Inc (NASDAQ:QLYS). This group of stocks’ market caps are closest to KBH’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 13 funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $170 million in KBH’s case. Gannett Co., Inc. (NYSE:GCI) is the most popular stock in this table, while First Financial Bancorp (NASDAQ:FFBC) is the least popular one with only eight funds having reported long positions. KB Home (NYSE:KBH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GCI might be a better candidate to consider taking a long position in.