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Hedge Funds Are Crazy About RH (RH)

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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about RH (NYSE:RH).

RH (NYSE:RH) was in 57 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic was previously 54. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. RH shareholders have witnessed an increase in enthusiasm from smart money in recent months. There were 54 hedge funds in our database with RH positions at the end of the second quarter. Our calculations also showed that RH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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. With all of this in mind let's review the key hedge fund action encompassing RH (NYSE:RH).

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital

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

At Q3's end, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 40 hedge funds with a bullish position in RH a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in RH (NYSE:RH) was held by Berkshire Hathaway, which reported holding $1195.1 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $860.7 million position. Other investors bullish on the company included D1 Capital Partners, Darsana Capital Partners, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to RH (NYSE:RH), around 11.07% of its 13F portfolio. Darsana Capital Partners is also relatively very bullish on the stock, earmarking 8.79 percent of its 13F equity portfolio to RH.

As one would reasonably expect, key money managers have been driving this bullishness. Darsana Capital Partners, managed by Anand Desai, established the largest position in RH (NYSE:RH). Darsana Capital Partners had $266.8 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman's Palestra Capital Management also made a $165.8 million investment in the stock during the quarter. The other funds with brand new RH positions are John Armitage's Egerton Capital Limited, Anand Parekh's Alyeska Investment Group, and James Crichton's Hitchwood Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to RH (NYSE:RH). We will take a look at Evergy, Inc. (NYSE:EVRG), Vedanta Ltd (NYSE:VEDL), SentinelOne, Inc. (NYSE:S), Cognex Corporation (NASDAQ:CGNX), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), PTC Inc (NASDAQ:PTC), and Cardinal Health, Inc. (NYSE:CAH). This group of stocks' market values match RH's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVRG,25,908059,4 VEDL,8,25575,-2 S,35,2234141,-32 CGNX,34,428413,-1 BMRN,44,1441300,0 PTC,37,1819643,6 CAH,36,664971,-4 Average,31.3,1074586,-4.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $1075 million. That figure was $4990 million in RH's case. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks RH (NYSE:RH) is more popular among hedge funds. Our overall hedge fund sentiment score for RH is 88. 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 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Unfortunately RH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on RH were disappointed as the stock returned -12.6% since the end of the third quarter (through 11/30) 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.