Is MTH Stock A Buy or Sell?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Meritage Homes Corp (NYSE:MTH).

Is MTH stock a buy? Meritage Homes Corp (NYSE:MTH) was in 30 hedge funds’ portfolios at the end of December. The all time high for this statistic is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. MTH investors should be aware of an increase in hedge fund interest of late. There were 25 hedge funds in our database with MTH positions at the end of the third quarter. Our calculations also showed that MTH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 let’s take a look at the recent hedge fund action encompassing Meritage Homes Corp (NYSE:MTH).

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

At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MTH over the last 22 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management has the number one position in Meritage Homes Corp (NYSE:MTH), worth close to $113.3 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Balyasny Asset Management, managed by Dmitry Balyasny, which holds a $30 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of Noam Gottesman’s GLG Partners, Israel Englander’s Millennium Management and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital. In terms of the portfolio weights assigned to each position Verdad Advisers allocated the biggest weight to Meritage Homes Corp (NYSE:MTH), around 2.59% of its 13F portfolio. Shellback Capital is also relatively very bullish on the stock, earmarking 1.04 percent of its 13F equity portfolio to MTH.

As one would reasonably expect, key hedge funds have jumped into Meritage Homes Corp (NYSE:MTH) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Meritage Homes Corp (NYSE:MTH). Balyasny Asset Management had $30 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also made a $13 million investment in the stock during the quarter. The other funds with new positions in the stock are Clint Carlson’s Carlson Capital, Dan Rasmussen’s Verdad Advisers, and Greg Eisner’s Engineers Gate Manager.

Let’s check out hedge fund activity in other stocks similar to Meritage Homes Corp (NYSE:MTH). We will take a look at Kirby Corporation (NYSE:KEX), Focus Financial Partners Inc. (NASDAQ:FOCS), White Mountains Insurance Group Ltd (NYSE:WTM), Allegiant Travel Company (NASDAQ:ALGT), Compania de Minas Buenaventura  S.A.A. (NYSE:BVN), National Health Investors Inc (NYSE:NHI), and Pluralsight, Inc. (NASDAQ:PS). This group of stocks’ market values match MTH’s market value.

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As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $269 million in MTH’s case. Pluralsight, Inc. (NASDAQ:PS) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura  S.A.A. (NYSE:BVN) is the least popular one with only 8 bullish hedge fund positions. Meritage Homes Corp (NYSE:MTH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MTH is 80.7. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and still beat the market by 1.5 percentage points. Hedge funds were also right about betting on MTH as the stock returned 14.5% since the end of Q4 (through 4/12) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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