We recently published a list Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. Since PulteGroup Inc (NYSE:PHM) ranks 10th on the list, it deserves a deeper look.
Venu Krishna, Head of U.S. Equity Strategy & Global Equity Linked Strategies at Barclays, recently shared a basket of stocks he recommends offsetting the risks that come from market concentration in big tech stocks. In an interview with CNBC, Krishna emphasized that he remains inclined towards big tech stocks, but the important question he addressed is which stocks offer more value outside of the tech sector in the long term.
Krishna’s methodology to find some of the best stocks outside of the tech sector is simple: find out at what “core fundamental” metrics big tech stocks are “excelling” at and then “try to come close to that and create a portfolio which can give us that kind of exposure.” Through this methodology, Krishna says, he came up with a well-diversified portfolio of stocks that could act as a “hedge” against market concertation in big tech.
Krishna said he applied “liquidity filters” on the whole market to remove a “bunch of companies” and narrow down to stocks with strong growth and FCF multiples.
Despite him pointing out the concentration of gains problem, Venu Krishna believes the rise of big tech stocks is a “healthy trend” and some of the gains are now bifurcating to other sectors, too.
However Krishna said that over the past 18 months his portfolio of stocks has lagged behind the Big Tech, but outperformed equal-weighted S&P 500 and market cap-weighted S&P 500.
For this article, we took a look at Krishna’s latest basket of stocks to offset concentration in big tech risks and picked 10 stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of a neighborhood with houses and a real estate brokerage office.
PulteGroup Inc (NYSE:PHM)
Number of Hedge Fund Investors: 39
Home construction company PulteGroup Inc (NYSE:PHM) is one of the stocks Venu Krishna, Barclays head of U.S. equity, is recommending to offset the tech concentration risk. PulteGroup Inc (NYSE:PHM) shares have gained about 57% over the past one year. The stock recently jumped following a broader optimism in the market that a lower-than-expected inflation recorded last month could result in a decrease in mortgage rates. PulteGroup Inc’s (NYSE:PHM) Q1 results impressed the Wall Street, as revenue jumped about 10% in the quarter on a YoY basis despite headwinds in the industry. Homebuilding gross margins in the quarter jumped 50bps to 29.6% even after a decline in sale prices. PulteGroup Inc (NYSE:PHM) is also seeing a rebound in the market. Net orders in the quarter rose 14% to 8,379 while cancellations dropped to 10% from 13%. PulteGroup Inc’s (NYSE:PHM) backlog is now worth about $8.3 billion, up about 3% from last year. The company has also increased guidance for gross margins. Here is what the management said during the latest earnings call:
Based on Q1 sign-ups and the composition of our backlog, we expect the geographic mix of closings to be more balanced as we move through the remainder of the year. That being said, we’re raising our gross margin guide for the remainder of ’24. We had previously guided to quarterly gross margins of 28% to 28.5%, but we now expect gross margins in the second quarter to be approximately 29.2%. Based on current backlog, we would expect gross margins for our third and fourth quarters to be approximately 29%, but we still have homes to sell and close, so demand conditions over the coming months will impact the results we ultimately report. Beyond buyer demand and near-term pricing dynamics, the gross margin guide for the remainder of ’24 also reflects expected changes in the geographic mix of homes we expect to close.
Overall, PulteGroup Inc (NYSE:PHM) ranks 10th on Insider Monkey’s list titled Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. While we acknowledge the potential of PulteGroup Inc (NYSE:PHM), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PulteGroup Inc (NYSE:PHM) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.