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Were Hedge Funds Right About RH (RH)?

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·6 min read
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In this article you are going to find out whether hedge funds think RH (NYSE:RH) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is RH (NYSE:RH) worth your attention right now? The smart money was taking a bullish view. The number of long hedge fund positions rose by 4 in recent months. RH (NYSE:RH) was in 54 hedge funds' portfolios at the end of June. The all time high for this statistic was previously 50. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RH isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 50 hedge funds in our database with RH positions at the end of the first quarter.

To the average investor there are several indicators shareholders use to evaluate publicly traded companies. A couple of the best indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can outpace their index-focused peers by a very impressive amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 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 scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. 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. 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 we're going to take a look at the latest hedge fund action regarding RH (NYSE:RH).

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

Heading into the third quarter of 2021, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RH over the last 24 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is RH A Good Stock To Buy?
Is RH A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in RH (NYSE:RH), which was worth $1216.7 million at the end of the second quarter. On the second spot was Lone Pine Capital which amassed $693.1 million worth of shares. D1 Capital Partners, Pelham Capital, and Arrowstreet Capital 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 Pelham Capital allocated the biggest weight to RH (NYSE:RH), around 13% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, dishing out 5.61 percent of its 13F equity portfolio to RH.

Consequently, key money managers were leading the bulls' herd. Lone Pine Capital, assembled the most outsized position in RH (NYSE:RH). Lone Pine Capital had $693.1 million invested in the company at the end of the quarter. Robert Boucai's Newbrook Capital Advisors also initiated a $83.1 million position during the quarter. The following funds were also among the new RH investors: Robert Joseph Caruso's Select Equity Group, Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital, and Elise Di Vincenzo Crumbine's Stormborn Capital Management.

Let's go over hedge fund activity in other stocks similar to RH (NYSE:RH). We will take a look at CenterPoint Energy, Inc. (NYSE:CNP), Signature Bank (NASDAQ:SBNY), WestRock Company (NYSE:WRK), GoodRx Holdings, Inc. (NASDAQ:GDRX), Wynn Resorts, Limited (NASDAQ:WYNN), ABIOMED, Inc. (NASDAQ:ABMD), and Oak Street Health, Inc. (NYSE:OSH). This group of stocks' market values resemble RH's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNP,20,287723,-5 SBNY,43,787102,3 WRK,32,572106,5 GDRX,28,635923,4 WYNN,37,712498,-12 ABMD,24,899188,-2 OSH,33,561397,2 Average,31,636562,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $637 million. That figure was $4331 million in RH's case. Signature Bank (NASDAQ:SBNY) is the most popular stock in this table. On the other hand CenterPoint Energy, Inc. (NYSE:CNP) is the least popular one with only 20 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 89. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 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 -2.8% since the end of the second quarter (through 11/5) 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.