Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The New Home Company Inc. (NYSE:NWHM).
The New Home Company Inc. (NYSE:NWHM) has experienced a decrease in hedge fund interest of late. The New Home Company Inc. (NYSE:NWHM) was in 5 hedge funds’ portfolios at the end of March. The all time high for this statistic is 8. Our calculations also showed that NWHM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of signals shareholders employ to assess their stock investments. Some of the less known signals are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the best investment managers can beat the market by a very impressive amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Fred DiSanto of Ancora Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $27 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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 check out the new hedge fund action surrounding The New Home Company Inc. (NYSE:NWHM).
Do Hedge Funds Think NWHM Is A Good Stock To Buy Now?
At the end of March, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NWHM over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of The New Home Company Inc. (NYSE:NWHM), with a stake worth $5.3 million reported as of the end of March. Trailing Royce & Associates was Gratia Capital, which amassed a stake valued at $1.1 million. Renaissance Technologies, Two Sigma Advisors, and Ancora Advisors 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 Gratia Capital allocated the biggest weight to The New Home Company Inc. (NYSE:NWHM), around 1.64% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to NWHM.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified NWHM as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks similar to The New Home Company Inc. (NYSE:NWHM). We will take a look at Fuel Tech Inc. (NASDAQ:FTEK), Cyclerion Therapeutics, Inc. (NASDAQ:CYCN), Coda Octopus Group, Inc. (NASDAQ:CODA), Taoping Inc. (NASDAQ:TAOP), J. Jill, Inc. (NYSE:JILL), Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN), and Core Molding Technologies, Inc. (NYSE:CMT). This group of stocks’ market caps match NWHM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTEK | 4 | 9600 | 1 |
| CYCN | 9 | 30854 | 1 |
| CODA | 2 | 858 | 2 |
| TAOP | 1 | 214 | -1 |
| JILL | 4 | 10738 | 2 |
| DFFN | 3 | 2026 | 0 |
| CMT | 3 | 17252 | -1 |
| Average | 3.7 | 10220 | 0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.7 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $8 million in NWHM’s case. Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) is the most popular stock in this table. On the other hand Taoping Inc. (NASDAQ:TAOP) is the least popular one with only 1 bullish hedge fund positions. The New Home Company Inc. (NYSE:NWHM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NWHM is 47.8. 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 gained 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on NWHM as the stock returned 13.7% since the end of Q1 (through 6/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow New Home Co Inc. (NYSE:NWHM)
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Disclosure: None. This article was originally published at Insider Monkey.
