Should I Avoid Cavco Industries, Inc. (CVCO)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Cavco Industries, Inc. (NASDAQ:CVCO) based on that data.

Cavco Industries, Inc. (NASDAQ:CVCO) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistic is 23. CVCO investors should be aware of a decrease in enthusiasm from smart money of late. There were 22 hedge funds in our database with CVCO holdings at the end of March. Our calculations also showed that CVCO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Chuck Royce of Royce & Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s take a peek at the key hedge fund action encompassing Cavco Industries, Inc. (NASDAQ:CVCO).

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

At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CVCO over the last 24 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, Richard Scott Greeder’s Broad Bay Capital has the number one position in Cavco Industries, Inc. (NASDAQ:CVCO), worth close to $69.5 million, comprising 8.2% of its total 13F portfolio. On Broad Bay Capital’s heels is Mario Gabelli of GAMCO Investors, with a $52.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass Ken Grossman and Glen Schneider’s SG Capital Management, Chuck Royce’s Royce & Associates and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Broad Bay Capital allocated the biggest weight to Cavco Industries, Inc. (NASDAQ:CVCO), around 8.24% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, dishing out 4.68 percent of its 13F equity portfolio to CVCO.

Because Cavco Industries, Inc. (NASDAQ:CVCO) has experienced bearish sentiment from hedge fund managers, logic holds that there is a sect of hedge funds who sold off their full holdings in the second quarter. Interestingly, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors sold off the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $6.8 million in stock. Gregg Moskowitz’s fund, Interval Partners, also said goodbye to its stock, about $2.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cavco Industries, Inc. (NASDAQ:CVCO) but similarly valued. We will take a look at Kadant Inc. (NYSE:KAI), Progress Software Corporation (NASDAQ:PRGS), Core-Mark Holding Company, Inc. (NASDAQ:CORE), Madison Square Garden Entertainment Corp. (NYSE:MSGE), Otter Tail Corporation (NASDAQ:OTTR), Nuvation Bio Inc. (NYSE:NUVB), and MFA Financial, Inc. (NYSE:MFA). This group of stocks’ market valuations are closest to CVCO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $224 million. That figure was $188 million in CVCO’s case. Nuvation Bio Inc. (NYSE:NUVB) is the most popular stock in this table. On the other hand Otter Tail Corporation (NASDAQ:OTTR) is the least popular one with only 8 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 66.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on CVCO as the stock returned 8.5% since the end of Q2 (through 10/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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