Were Hedge Funds Right About Crowding Into NVR, Inc. (NVR)?

In this article we will take a look at whether hedge funds think NVR, Inc. (NYSE:NVR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

NVR, Inc. (NYSE:NVR) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. NVR has seen an increase in hedge fund interest of late. There were 34 hedge funds in our database with NVR positions at the end of the first quarter. Our calculations also showed that NVR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are a lot of formulas investors put to use to grade stocks. A couple of the less known formulas are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the top fund managers can outpace their index-focused peers by a superb amount (see the details here).

Richard Gerson of Falcon Edge Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. With all of this in mind let’s review the fresh hedge fund action regarding NVR, Inc. (NYSE:NVR).

What does smart money think about NVR, Inc. (NYSE:NVR)?

At the end of June, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in NVR 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 meaningfully (or already accumulated large positions).

More specifically, Diamond Hill Capital was the largest shareholder of NVR, Inc. (NYSE:NVR), with a stake worth $322.8 million reported as of the end of June. Trailing Diamond Hill Capital was Impala Asset Management, which amassed a stake valued at $77.9 million. Renaissance Technologies, Millennium Management, and Falcon Edge Capital 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 Impala Asset Management allocated the biggest weight to NVR, Inc. (NYSE:NVR), around 8.92% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, dishing out 8.43 percent of its 13F equity portfolio to NVR.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Ogborne Capital, managed by Mike Ogborne, created the biggest position in NVR, Inc. (NYSE:NVR). Ogborne Capital had $17.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $13.8 million position during the quarter. The other funds with brand new NVR positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Clint Carlson’s Carlson Capital, and John Ku’s Manor Road Capital Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NVR, Inc. (NYSE:NVR) but similarly valued. These stocks are HEICO Corporation (NYSE:HEI), Alliant Energy Corporation (NASDAQ:LNT), Extra Space Storage, Inc. (NYSE:EXR), IDEX Corporation (NYSE:IEX), KeyCorp (NYSE:KEY), POSCO (NYSE:PKX), and NICE Ltd (NASDAQ:NICE). This group of stocks’ market valuations match NVR’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $940 million in NVR’s case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 10 bullish hedge fund positions. NVR, Inc. (NYSE:NVR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVR is 80.3. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on NVR as the stock returned 21.3% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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