Is TMHC Stock A Buy?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Taylor Morrison Home Corp (NYSE:TMHC).

Is TMHC stock a buy? The smart money was becoming less hopeful. The number of bullish hedge fund positions went down by 2 lately. Taylor Morrison Home Corp (NYSE:TMHC) was in 33 hedge funds’ portfolios at the end of December. The all time high for this statistic is 35. Our calculations also showed that TMHC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Bill Miller of Miller Value 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. With all of this in mind we’re going to take a glance at the new hedge fund action regarding Taylor Morrison Home Corp (NYSE:TMHC).

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

At Q4’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TMHC over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Bill Miller’s Miller Value Partners has the biggest position in Taylor Morrison Home Corp (NYSE:TMHC), worth close to $83.2 million, corresponding to 2.5% of its total 13F portfolio. On Miller Value Partners’s heels is Basswood Capital, led by Matthew Lindenbaum, holding a $40.5 million position; 2.5% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish consist of Malcolm Levine’s Dendur Capital, Ken Griffin’s Citadel Investment Group and Brian Ashford-Russell and Tim Woolley’s Polar Capital. In terms of the portfolio weights assigned to each position Dendur Capital allocated the biggest weight to Taylor Morrison Home Corp (NYSE:TMHC), around 7.01% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, dishing out 2.53 percent of its 13F equity portfolio to TMHC.

Seeing as Taylor Morrison Home Corp (NYSE:TMHC) has witnessed bearish sentiment from the smart money, we can see that there is a sect of money managers that decided to sell off their full holdings by the end of the fourth quarter. Intriguingly, Ken Heebner’s Capital Growth Management cut the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $29.8 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund dumped about $8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the fourth quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Taylor Morrison Home Corp (NYSE:TMHC) but similarly valued. We will take a look at Seer, Inc. (NASDAQ:SEER), BRP Group, Inc. (NASDAQ:BRP), Cantel Medical Corp. (NYSE:CMD), Corsair Gaming, Inc. (NASDAQ:CRSR), FormFactor, Inc. (NASDAQ:FORM), Ryder System, Inc. (NYSE:R), and Triton International Limited (NYSE:TRTN). This group of stocks’ market valuations resemble TMHC’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $224 million. That figure was $270 million in TMHC’s case. Triton International Limited (NYSE:TRTN) is the most popular stock in this table. On the other hand Corsair Gaming, Inc. (NASDAQ:CRSR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Taylor Morrison Home Corp (NYSE:TMHC) is more popular among hedge funds. Our overall hedge fund sentiment score for TMHC is 81.3. 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 returned 7.9% in 2021 through April 1st but still managed to beat the market by 0.4 percentage points. Hedge funds were also right about betting on TMHC as the stock returned 23.5% since the end of December (through 4/1) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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