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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of RH (NYSE:RH).
Is RH a good stock to buy now? RH (NYSE:RH) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 40 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that RH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Sibanye Stillwater Limited (NYSE:SBSW), Alleghany Corporation (NYSE:Y), and Service Corporation International (NYSE:SCI) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Daniel Sundheim of D1 Capital Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind we're going to view the recent hedge fund action encompassing RH (NYSE:RH).
Do Hedge Funds Think RH Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RH over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in RH (NYSE:RH), which was worth $653.6 million at the end of the third quarter. On the second spot was D1 Capital Partners which amassed $208.5 million worth of shares. Two Sigma Advisors, D E Shaw, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MIG Capital allocated the biggest weight to RH (NYSE:RH), around 6.38% of its 13F portfolio. Stony Point Capital is also relatively very bullish on the stock, setting aside 5.34 percent of its 13F equity portfolio to RH.
Since RH (NYSE:RH) has experienced falling interest from hedge fund managers, we can see that there was a specific group of funds that slashed their positions entirely heading into Q4. Interestingly, Ken Griffin's Citadel Investment Group dropped the largest investment of all the hedgies followed by Insider Monkey, totaling an estimated $160.5 million in stock, and Steve Zheng's Deepcurrents Investment Group was right behind this move, as the fund cut about $135.8 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as RH (NYSE:RH) but similarly valued. We will take a look at Sibanye Stillwater Limited (NYSE:SBSW), Alleghany Corporation (NYSE:Y), Service Corporation International (NYSE:SCI), Owens Corning (NYSE:OC), SEI Investments Company (NASDAQ:SEIC), Genpact Limited (NYSE:G), and Hubbell Incorporated (NYSE:HUBB). This group of stocks' market caps match RH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBSW,22,208952,5 Y,29,306105,-2 SCI,30,727982,3 OC,43,682518,6 SEIC,36,231552,-1 G,28,213915,-1 HUBB,30,352117,1 Average,31.1,389020,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.1 hedge funds with bullish positions and the average amount invested in these stocks was $389 million. That figure was $1624 million in RH's case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Sibanye Stillwater Limited (NYSE:SBSW) is the least popular one with only 22 bullish hedge fund positions. RH (NYSE:RH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RH is 77.9. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on RH as the stock returned 11.5% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.