We at Insider Monkey have gone over 700 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article we look at what those investors think of Costco Wholesale Corporation (NASDAQ:COST).
Is Costco Wholesale Corporation (NASDAQ:COST) a healthy stock for your portfolio? Investors who are in the know are becoming less confident. The number of bullish hedge fund bets decreased by 1 in recent months. Our calculations also showed that COST isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_332520" align="aligncenter" width="450"] Warren Buffett of Berkshire Hathaway[/caption]
Let's take a glance at the new hedge fund action encompassing Costco Wholesale Corporation (NASDAQ:COST).
What have hedge funds been doing with Costco Wholesale Corporation (NASDAQ:COST)?
At Q3's end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in COST heading into this year. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Costco Wholesale Corporation (NASDAQ:COST) was held by Berkshire Hathaway, which reported holding $1017.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $629.6 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Adage Capital Management.
Due to the fact that Costco Wholesale Corporation (NASDAQ:COST) has experienced bearish sentiment from the smart money, logic holds that there exists a select few fund managers who sold off their full holdings in the third quarter. Intriguingly, Alexander Mitchell's Scopus Asset Management dropped the largest position of the 700 funds monitored by Insider Monkey, worth an estimated $62.7 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund sold off about $52.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Costco Wholesale Corporation (NASDAQ:COST) but similarly valued. We will take a look at Broadcom Inc (NASDAQ:AVGO), Bristol Myers Squibb Company (NYSE:BMY), United Parcel Service, Inc. (NYSE:UPS), and AstraZeneca plc (NYSE:AZN). This group of stocks' market caps match COST's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVGO,49,4093454,-5 BMY,48,4045879,3 UPS,31,1913899,-4 AZN,26,1239121,3 Average,38.5,2823088,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $2.82 billion. That figure was $2.83 billion in COST's case. Broadcom Inc (NASDAQ:AVGO) is the most popular stock in this table. On the other hand AstraZeneca plc (NYSE:AZN) is the least popular one with only 26 bullish hedge fund positions. Costco Wholesale Corporation (NASDAQ:COST) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard AVGO might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.