River Road Asset Management, an investment management company released its “River Road Small Cap Value Fund” Q4 2024 investor letter. A copy of the letter can be downloaded here. In the fourth quarter, AMG River Road Small Cap Value Fund (Class N) returned 7.35% compared to -1.06% returns for the Russell 2000® Value Index. For the year 2024, the fund returned 14.07%, significantly outperforming Index return of 8.06%. Stocks rallied in November after a Republican victory but declined sharply following hawkish Fed comments. Shorter duration stocks, including small caps and value, lost most of their post-election gains by the end of December. Small caps lagged their large counter parts for eight consecutive years. For more information on the fund’s best picks in 2024, please check its top five holdings.
In its fourth quarter 2024 investor letter, River Road Small Cap Value Fund emphasized stocks such as LGI Homes, Inc. (NASDAQ:LGIH). LGI Homes, Inc. (NASDAQ:LGIH) is a US-based home builder engages in the design, construction, and sale of homes. The one-month return of LGI Homes, Inc. (NASDAQ:LGIH) was -5.49%, and its shares lost 41.92% of their value over the last 52 weeks. On March 31, 2025, LGI Homes, Inc. (NASDAQ:LGIH) stock closed at $66.47 per share with a market capitalization of $1.555 billion.
River Road Small Cap Value Fund stated the following regarding LGI Homes, Inc. (NASDAQ:LGIH) in its Q4 2024 investor letter:
“Another poor performer was LGI Homes, Inc. (NASDAQ:LGIH), the 15th largest homebuilder in the U.S. specializing in entry-level homes for first-time buyers. The stock rallied in Q3 on the prospect of lower mortgage rates due to several projected rate cuts by the Fed. After the U.S. presidential election, the Fed reversed course and interest rates increased, and LGIH began to lag the market. LGIH’s Q3 2024 results exceeded expectations despite ongoing affordability challenges for homebuyers. Home sales revenue rose mainly due to an increase in the average sales price (ASP) to $371k, up 5.2% year-over-year. Home closings for the quarter totaled 1,757 homes, flat compared to the prior year but up 6% sequentially. LGIH reduced its expected closings for fiscal year (FY) 2024 to 6,100-6,400 homes from the initial 7,000 8,000 range, while raising gross margin expectations. Amid a U.S. housing shortage estimated at two-to-four million homes, we believe prioritizing margins over volume is the right strategy for LGIH, which has spent the last two years building its inventory of developed lots and raw land. Q3 gross margins were flat year-over-year in stark contrast to industry peers who reported gross margin declines, particularly at the entry-level segment. Active community count grew 30% year-over-year and 8% sequentially to 138, positioning the company to meet its year-end target of 150 active communities and significantly increase home closings in FY 2025. We took no action on the position.”
A worker hammering a nail into the frame of a single-family home under construction.
LGI Homes, Inc. (NASDAQ:LGIH) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 21 hedge fund portfolios held LGI Homes, Inc. (NASDAQ:LGIH) at the end of the fourth quarter compared to 22 in the third quarter. In the fourth quarter, LGI Homes, Inc. (NASDAQ:LGIH) generated $557.4 million in revenue, representing an 8.4% decrease year-over-year. While we acknowledge the potential of LGI Homes, Inc. (NASDAQ:LGIH) as an investment, 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
We covered LGI Homes, Inc. (NASDAQ:LGIH) in another article, where we shared the list of top small cap stocks to buy with the highest upside potential. In addition, please check out our hedge fund investor letters Q4 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.