Is CVCO A Good Stock To Buy Now According To Hedge Funds?

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Cavco Industries, Inc. (NASDAQ:CVCO) based on that data.

Is CVCO a good stock to buy now? Cavco Industries, Inc. (NASDAQ:CVCO) has experienced a decrease in hedge fund sentiment of late. Cavco Industries, Inc. (NASDAQ:CVCO) was in 22 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 23. Our calculations also showed that CVCO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ian Wace of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we’re going to check out the fresh hedge fund action regarding Cavco Industries, Inc. (NASDAQ:CVCO).

Do Hedge Funds Think CVCO Is A Good Stock To Buy Now?

At third quarter’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in CVCO a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

More specifically, Broad Bay Capital was the largest shareholder of Cavco Industries, Inc. (NASDAQ:CVCO), with a stake worth $48.1 million reported as of the end of September. Trailing Broad Bay Capital was GAMCO Investors, which amassed a stake valued at $44.3 million. Renaissance Technologies, Royce & Associates, and Fisher Asset Management 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 Broad Bay Capital allocated the biggest weight to Cavco Industries, Inc. (NASDAQ:CVCO), around 7.01% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, setting aside 2.93 percent of its 13F equity portfolio to CVCO.

Judging by the fact that Cavco Industries, Inc. (NASDAQ:CVCO) has experienced declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of hedge funds who were dropping their entire stakes last quarter. It’s worth mentioning that Jeffrey Gendell’s Tontine Asset Management said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $2.9 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $1.2 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Cavco Industries, Inc. (NASDAQ:CVCO). We will take a look at Progress Software Corporation (NASDAQ:PRGS), Prelude Therapeutics Incorporated (NASDAQ:PRLD), International Bancshares Corp (NASDAQ:IBOC), Walker & Dunlop Inc. (NYSE:WD), Madison Square Garden Entertainment Corp. (NYSE:MSGE), Veoneer, Inc. (NYSE:VNE), and Pebblebrook Hotel Trust (NYSE:PEB). This group of stocks’ market values resemble CVCO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.9 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $160 million in CVCO’s case. Madison Square Garden Entertainment Corp. (NYSE:MSGE) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 9 bullish hedge fund positions. Cavco Industries, Inc. (NASDAQ:CVCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CVCO is 58.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately CVCO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CVCO were disappointed as the stock returned -0.6% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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