In this article we will check out the progression of hedge fund sentiment towards Legacy Housing Corporation (NASDAQ:LEGH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Hedge fund interest in Legacy Housing Corporation (NASDAQ:LEGH) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LEGH to other stocks including China Distance Education Hldgs Ltd (NYSE:DL), Haverty Furniture Companies, Inc. (NYSE:HVT), and Global Water Resources, Inc. (NASDAQ:GWRS) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a gander at the latest hedge fund action regarding Legacy Housing Corporation (NASDAQ:LEGH).
What have hedge funds been doing with Legacy Housing Corporation (NASDAQ:LEGH)?
Heading into the second quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LEGH over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Chuck Royce's Royce & Associates has the most valuable position in Legacy Housing Corporation (NASDAQ:LEGH), worth close to $2.7 million, corresponding to less than 0.1%% of its total 13F portfolio. On Royce & Associates's heels is Travis Cocke of Voss Capital, with a $2.4 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions comprise Ken Griffin's Citadel Investment Group, David M. Knott's Dorset Management and . In terms of the portfolio weights assigned to each position Voss Capital allocated the biggest weight to Legacy Housing Corporation (NASDAQ:LEGH), around 3.24% of its 13F portfolio. Dorset Management is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to LEGH.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Gratia Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Legacy Housing Corporation (NASDAQ:LEGH) but similarly valued. We will take a look at China Distance Education Hldgs Ltd (NYSE:DL), Haverty Furniture Companies, Inc. (NYSE:HVT), Global Water Resources, Inc. (NASDAQ:GWRS), and MarineMax, Inc. (NYSE:HZO). All of these stocks' market caps are similar to LEGH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DL,2,3460,-1 HVT,10,33803,0 GWRS,3,4299,-1 HZO,10,3750,2 Average,6.25,11328,0 [/table]
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $5 million in LEGH's case. Haverty Furniture Companies, Inc. (NYSE:HVT) is the most popular stock in this table. On the other hand China Distance Education Hldgs Ltd (NYSE:DL) is the least popular one with only 2 bullish hedge fund positions. Legacy Housing Corporation (NASDAQ:LEGH) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on LEGH as the stock returned 40.6% during the second quarter and outperformed the market by an even larger margin.
