Were Hedge Funds Right About Piling Into Green Brick Partners Inc (GRBK)?

·6 min read

In this article you are going to find out whether hedge funds think Green Brick Partners Inc (NASDAQ:GRBK) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Green Brick Partners Inc (NASDAQ:GRBK) a bargain? Prominent investors were in an optimistic mood. The number of long hedge fund bets rose by 6 lately. Green Brick Partners Inc (NASDAQ:GRBK) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 21. Our calculations also showed that GRBK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 12 hedge funds in our database with GRBK positions at the end of the fourth quarter.

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 115 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.

Matthew Halbower Pentwater Capital
Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind let's go over the recent hedge fund action surrounding Green Brick Partners Inc (NASDAQ:GRBK).

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

At first quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in GRBK a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is GRBK A Good Stock To Buy?
Is GRBK A Good Stock To Buy?

The largest stake in Green Brick Partners Inc (NASDAQ:GRBK) was held by Greenlight Capital, which reported holding $395.1 million worth of stock at the end of December. It was followed by Prelude Capital (previously Springbok Capital) with a $19.3 million position. Other investors bullish on the company included Diamond Hill Capital, Millennium Management, and Birch Run Capital. In terms of the portfolio weights assigned to each position Greenlight Capital allocated the biggest weight to Green Brick Partners Inc (NASDAQ:GRBK), around 27.5% of its 13F portfolio. AWH Capital is also relatively very bullish on the stock, designating 4.68 percent of its 13F equity portfolio to GRBK.

As one would reasonably expect, key money managers were leading the bulls' herd. Prelude Capital (previously Springbok Capital), managed by Gavin Saitowitz and Cisco J. del Valle, initiated the most outsized position in Green Brick Partners Inc (NASDAQ:GRBK). Prelude Capital (previously Springbok Capital) had $19.3 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $10.2 million position during the quarter. The following funds were also among the new GRBK investors:Renaissance Technologies, Ken Griffin's Citadel Investment Group, and Matthew Halbower's Pentwater Capital Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Green Brick Partners Inc (NASDAQ:GRBK) but similarly valued. These stocks are Schnitzer Steel Industries, Inc. (NASDAQ:SCHN), MiMedx Group Inc (NASDAQ:MDXG), Genesis Energy, L.P. (NYSE:GEL), Hibbett Sports, Inc. (NASDAQ:HIBB), SMART Global Holdings, Inc. (NASDAQ:SGH), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), and Diversified Healthcare Trust (NASDAQ:DHC). This group of stocks' market valuations are similar to GRBK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCHN,12,15347,3 MDXG,14,50127,2 GEL,5,11071,1 HIBB,17,120320,-3 SGH,16,399044,-2 BHLB,11,35517,-6 DHC,10,50977,-4 Average,12.1,97486,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.1 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $472 million in GRBK's case. Hibbett Sports, Inc. (NASDAQ:HIBB) is the most popular stock in this table. On the other hand Genesis Energy, L.P. (NYSE:GEL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Green Brick Partners Inc (NASDAQ:GRBK) is more popular among hedge funds. Our overall hedge fund sentiment score for GRBK is 85.7. 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 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Unfortunately GRBK wasn't nearly as popular as these 5 stocks and hedge funds that were betting on GRBK were disappointed as the stock returned 2.1% since the end of the first quarter (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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

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