Ken Heebner’s CGM Flattens 5 Homebuilding Positions in 4th Quarter

Capital Growth Management, the firm co-founded by Ken Heebner (Trades, Portfolio), disclosed in February that its top five sells during the fourth quarter were all in the residential construction sector: Meritage Homes Corp. (NYSE:MTH), Lennar Corp. (NYSE:LEN), D.R. Horton Inc. (NYSE:DHI), LGI Homes Inc. (NASDAQ:LGIH) and Toll Brothers Inc. (NYSE:TOL).

The Boston-based money management firm seeks long-term capital appreciation through bold and swift sector calls. A growth-oriented firm, Capital Growth Management does not mind making large bets based on Heebner’s convictions.

As of December 2020, CGM’s $993 million equity portfolio contains 53 stocks, with 31 new holdings and a turnover ratio of 63{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. Despite this, the firm’s equity portfolio weight in the residential construction sector declined from the third-quarter 2020 weight of 44.09{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} to just 4.95{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} for the fourth quarter.

Meritage Homes

CGM sold 620,000 shares of Meritage Homes (NYSE:MTH), shrinking the equity portfolio 7.15{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. Shares averaged $94.25 during the fourth quarter of 2020.

GuruFocus ranks the Scottsdale, Arizona-based homebuilder’s profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 9 and an operating margin that is near a 10-year high of 11.74{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and outperforming over 68{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors.

Gurus with holdings in Meritage include Ken Fisher (Trades, Portfolio)’s Fisher Investments and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.

Lennar

CGM sold 585,000 shares of Lennar (NYSE:LEN), axing 72.67{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of the position and 4.99{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of the equity portfolio. Shares averaged $77.28 during the fourth quarter.

GuruFocus ranks the Miami-based company’s profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7 and an operating margin that is near a 10-year high of 13.88{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and outperforms over 75{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors.

D.R. Horton

CGM sold 580,000 shares of D.R. Horton (NYSE:DHI), trimming the position 65.91{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and the equity portfolio 4.58{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. Shares averaged $72.85 during the fourth quarter.

GuruFocus ranks the Arlington, Texas-based company’s profitability 9 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7 and an operating margin that is near a 10-year high of 15.41{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and outperforms close to 80{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors.

LGI Homes

CGM sold 335,000 shares of LGI Homes (NASDAQ:LGIH), paring the equity portfolio 4.07{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. Shares averaged $113.76 during the fourth quarter.

GuruFocus ranks the Woodlands, Texas-based company’s profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 8 and returns on assets that outperform over 95{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors.

Toll Brothers

CGM sold 660,000 shares of Toll Brothers (NYSE:TOL), paring the position 70.97{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and the equity portfolio 3.36{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}. Shares averaged $46.32 during the fourth quarter.

GuruFocus ranks the Pennsylvania-based homebuilder’s profitability 7 out of 10: Three-year revenue growth rates are outperforming approximately 82{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors even though profit margins and returns are outperforming just over 55{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global residential construction companies.

Disclosure: No positions.

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