Does Toll Brothers Inc (NYSE:TOL) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Toll Brothers Inc (NYSE:TOL) a buy here? The smart money is in a bullish mood. The number of long hedge fund bets increased by 2 in recent months. Our calculations also showed that TOL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the key hedge fund action surrounding Toll Brothers Inc (NYSE:TOL).
Hedge fund activity in Toll Brothers Inc (NYSE:TOL)
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TOL over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Toll Brothers Inc (NYSE:TOL) was held by Greenhaven Associates, which reported holding $153.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $120.6 million position. Other investors bullish on the company included Citadel Investment Group, Echo Street Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Toll Brothers Inc (NYSE:TOL), around 3.11% of its 13F portfolio. Gratia Capital is also relatively very bullish on the stock, dishing out 1.71 percent of its 13F equity portfolio to TOL.
As aggregate interest increased, some big names have been driving this bullishness. PDT Partners, managed by Peter Muller, created the most outsized position in Toll Brothers Inc (NYSE:TOL). PDT Partners had $8.4 million invested in the company at the end of the quarter. Eduardo Abush’s Waterfront Capital Partners also made a $8.2 million investment in the stock during the quarter. The following funds were also among the new TOL investors: David Harding’s Winton Capital Management, Ray Dalio’s Bridgewater Associates, and Steve Pei’s Gratia Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Toll Brothers Inc (NYSE:TOL) but similarly valued. We will take a look at CACI International Inc (NYSE:CACI), Herbalife Nutrition Ltd. (NYSE:HLF), SolarWinds Corporation (NYSE:SWI), and Medidata Solutions Inc (NASDAQ:MDSO). This group of stocks’ market caps match TOL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CACI | 25 | 522212 | -4 |
| HLF | 22 | 2655964 | -5 |
| SWI | 13 | 2504777 | -9 |
| MDSO | 23 | 585095 | -7 |
| Average | 20.75 | 1567012 | -6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $1567 million. That figure was $483 million in TOL’s case. CACI International Inc (NYSE:CACI) is the most popular stock in this table. On the other hand SolarWinds Inc (NYSE:SWI) is the least popular one with only 13 bullish hedge fund positions. Toll Brothers Inc (NYSE:TOL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TOL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TOL were disappointed as the stock returned -1.9% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
