How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding PulteGroup, Inc. (NYSE:PHM) and determine whether hedge funds had an edge regarding this stock.
Is PulteGroup, Inc. (NYSE:PHM) ready to rally soon? The best stock pickers were becoming more confident. The number of long hedge fund bets advanced by 1 lately. PulteGroup, Inc. (NYSE:PHM) was in 35 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 43. Our calculations also showed that PHM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 34 hedge funds in our database with PHM positions at the end of the second quarter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks 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. Now we’re going to take a glance at the recent hedge fund action encompassing PulteGroup, Inc. (NYSE:PHM).
Clint Carlson of Carlson Capital
Do Hedge Funds Think PHM Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. By comparison, 43 hedge funds held shares or bullish call options in PHM a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of PulteGroup, Inc. (NYSE:PHM), with a stake worth $143.4 million reported as of the end of September. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $88.2 million. Millennium Management, Appaloosa Management LP, and Prana Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prana Capital Management allocated the biggest weight to PulteGroup, Inc. (NYSE:PHM), around 5.33% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 1.71 percent of its 13F equity portfolio to PHM.
As one would reasonably expect, some big names have jumped into PulteGroup, Inc. (NYSE:PHM) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the biggest position in PulteGroup, Inc. (NYSE:PHM). Balyasny Asset Management had $50.3 million invested in the company at the end of the quarter. John Khoury’s Long Pond Capital also initiated a $32.8 million position during the quarter. The other funds with brand new PHM positions are Clint Carlson’s Carlson Capital, Brandon Haley’s Holocene Advisors, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PulteGroup, Inc. (NYSE:PHM) but similarly valued. These stocks are Graco Inc. (NYSE:GGG), Allegion plc (NYSE:ALLE), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Qiagen NV (NYSE:QGEN), Bruker Corporation (NASDAQ:BRKR), Godaddy Inc (NYSE:GDDY), and FMC Corporation (NYSE:FMC). This group of stocks’ market valuations are similar to PHM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GGG | 32 | 258259 | 8 |
| ALLE | 32 | 1002211 | -5 |
| KOF | 6 | 460706 | -3 |
| QGEN | 21 | 599491 | -1 |
| BRKR | 31 | 552162 | 0 |
| GDDY | 37 | 2299629 | -2 |
| FMC | 28 | 349943 | -5 |
| Average | 26.7 | 788914 | -1.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $789 million. That figure was $772 million in PHM’s case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. PulteGroup, Inc. (NYSE:PHM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PHM is 77.2. 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on PHM as the stock returned 15.1% since the end of Q3 (through 1/31) 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.
