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Was The Smart Money Right About Piling Into RH (RH)?

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·5 min read
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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 887 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded RH (NYSE:RH) based on those filings.

RH (NYSE:RH) was in 42 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 40. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. RH has experienced an increase in hedge fund sentiment of late. There were 40 hedge funds in our database with RH holdings at the end of September. Our calculations also showed that RH isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

To the average investor there are dozens of formulas stock market investors put to use to size up publicly traded companies. Some of the best formulas are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the top money managers can trounce the S&P 500 by a superb margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. 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 check out the fresh hedge fund action encompassing RH (NYSE:RH).

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

At the end of December, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the third quarter of 2020. By comparison, 38 hedge funds held shares or bullish call options in RH 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 RH A Good Stock To Buy?
Is RH A Good Stock To Buy?

The largest stake in RH (NYSE:RH) was held by Berkshire Hathaway, which reported holding $775.4 million worth of stock at the end of December. It was followed by D1 Capital Partners with a $507.2 million position. Other investors bullish on the company included Pelham Capital, Third Point, and Woodson Capital Management. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to RH (NYSE:RH), around 8.49% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, designating 5.52 percent of its 13F equity portfolio to RH.

As aggregate interest increased, key money managers have jumped into RH (NYSE:RH) headfirst. Pelham Capital, managed by Ross Turner, initiated the most valuable position in RH (NYSE:RH). Pelham Capital had $128.2 million invested in the company at the end of the quarter. Dan Loeb's Third Point also initiated a $115.7 million position during the quarter. The following funds were also among the new RH investors: Brian Scudieri's Kehrs Ridge Capital, Paul Marshall and Ian Wace's Marshall Wace LLP, and Peter Avellone's Cartenna Capital.

Let's go over hedge fund activity in other stocks similar to RH (NYSE:RH). These stocks are Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Shaw Communications Inc (NYSE:SJR), The Western Union Company (NYSE:WU), Flex Ltd. (NASDAQ:FLEX), Newell Brands Inc. (NYSE:NWL), Pinnacle West Capital Corporation (NYSE:PNW), and WEX Inc (NYSE:WEX). This group of stocks' market valuations match RH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KOF,6,384456,0 SJR,19,143455,6 WU,29,491046,-7 FLEX,44,1373056,17 NWL,23,1529633,-4 PNW,24,331462,2 WEX,26,422739,0 Average,24.4,667978,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $668 million. That figure was $1926 million in RH's case. Flex Ltd. (NASDAQ:FLEX) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 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 84.4. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on RH as the stock returned 53.7% since the end of Q4 (through 4/30) 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.

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