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Why Howard Hughes (HHC) Stock is a Compelling Investment Case

Rhizome Partners recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 18.3% for the second quarter (net of fees), underperforming its benchmark, the S&P 500 Index which returned 20.6% in the same quarter. You should check out Rhizome Partners’ top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Rhizome Partners highlighted a few stocks and Howard Hughes Corp (NYSE:HHC) is one of them. Howard Hughes Corp (NYSE:HHC) is a real estate development and management company. Year-to-date, Howard Hughes Corp (NYSE:HHC) stock lost 54.0% and on August 21st it had a closing price of $55.07. Here is what Rhizome Partners said:

“Howard Hughes experienced more dramatic impacts to its business than our other portfolio companies. Most categories of assets have been hurt except for the land sale business which has remained surprisingly resilient. During the second quarter, Howard Hughes Corporation had to shut down its hospitality and entertainment business. Most of the retailers had to shut down except for essential grocery and drug stores. The Seaport in New York City was shut down. Las Vegas was deeply impacted due to casinos being shut down. Hawaii suffered due to drop offs in tourism. Surprisingly, condo pre‐sales in its luxury Honolulu towers have held up well. The Woodlands office market is suffering due to its exposure to the oil and gas industry. We do not think that the ultimate vacancy rate will be as high as most investors are currently projecting. It would not surprise us if the Class A category peaks at less than 20% vacancy rate.

One way that this crisis is different than previous crises is the forced closure of retail and hospitality businesses. Generally, retail and hospitality investors underwrite to declines in net operating income of 25%‐ 50% during a bad recession. The forced closures actually turn the retail and hospitality assets’ net operating income negative. We have spent a great deal of time on the ground in many of Howard Hughes’ key markets. We believe that many of their assets are still attractive. What is unique about their retail assets is that they are valuable amenities to the master planned communities. The retailers are carefully chosen and we believe they will be sustainable and relevant in 10, 20, and 30 years as people will still want a nice steakhouse and a WholeFoods that they can walk to. The recovery will take time. But the current price also sets the company up for a potential multi‐bagger in a few years. Our enthusiasm for a potential multi‐bagger opportunity is tempered by the fact that the company was ill prepared financially heading into a crisis. The chairman, Bill Ackman, also forced the company to issues shares at a large discount to intrinsic value. We have updated our score card on management and board quality.”

This isn’t the first time Rhizome Partners talked about Howard Hughes Corp (NYSE:HHC) favorably either. The investment firm has been a long time Howard Hughes Corp (NYSE:HHC) bull. In April, we shared Rhizome Partners bullish Howard Hughes Corp (NYSE:HHC) thesis in this article.

In Q1 2020, the number of bullish hedge fund positions on Howard Hughes Corp (NYSE:HHC) stock decreased by about 4% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Howard Hughes’ growth potential. Our calculations showed that Howard Hughes Corp (NYSE:HHC) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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