Hedge Funds Have Built A Place in Their Portfolios for These Homebuilders

The homebuilding industry might be facing rough weather of late, but has performed remarkably well over the past five years. During that period, the S&P Home builders Select Industry Index has registered gains of almost 92%, topping the S&P 500’s returns of 66% during the same period. Several analysts and investors like Morris Mark, founder of Mark Asset Management, believe that this outperformance can continue over the next few years. While speaking at the recently concluded SALT Conference in Las Vegas, Mr. Mark said that low interest rates and increasing employment are improving the situation in the housing market. He also believes that regardless of who wins the presidential race this year, the new administration will work towards easing the regulations on residential housing financing, which have been under intense scrutiny since the end of the financial crisis. Considering the optimistic outlook that investors have towards the industry, in this article we’ll run through the five most popular homebuilder stocks among the hedge funds in our system as of March 31.

Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

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#5 PulteGroup, Inc. (NYSE:PHM)

 – Investors with long positions (as of March 31): 29

 – Aggregate value of investors’ holdings (as of March 31): $452.44 million

Let’s begin with PulteGroup, Inc. (NYSE:PHM), which was in the portfolios of 29 of the hedge funds in our database on March 31, up by five quarter-over-quarter, while the aggregate value of their holdings in the stock rose by $39.4 million. PulteGroup, Inc. (NYSE:PHM)’s stock has largely been range-bound over the past three years, but investors have at least enjoyed the fruits of larger dividend payments, as shares currently sport an annual dividend yield of almost 2%, up from 1.16% in August of 2013. On April 25, analysts at Raymond Jones downgraded the stock to ‘Market Perform’ from ‘Outperform’, while keeping their price target on it unchanged at $19. A fund that increased its stake in PulteGroup during the first quarter was David L Briggs‘ Dulcet Capital, which upped its holding by 63% to 2.2 million shares.

#4 CalAtlantic Group Inc (NYSE:CAA)

 – Investors with long positions (as of March 31): 32

 – Aggregate value of investors’ holdings (as of March 31): $734.70 million

CalAtlantic Group Inc (NYSE:CAA)’s stock has gone nowhere in the last eight months, since Standard Pacific Corp. completed its merger with The Ryland Group, Inc. and created this new entity in October, 2015. During the first quarter, the number of hedge funds in our system long CalAtlantic Group Inc (NYSE:CAA) rose by three and the aggregate value of their holdings in the company swelled by $58.1 million. At the end of that period, the funds that we track owned over 18% of the company’s float in aggregate. On May 6, CalAtlantic Group Inc (NYSE:CAA) reported its first quarter results, declaring EPS of $0.15 on revenue of $694.10 million, which were largely in-line with analysts’ expectations of EPS of $0.14 on revenue of $694.92 million.

We’ll check out the three most popular homebuilders on the next page.