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Hedge Funds Are Dumping Costco Wholesale Corporation (COST)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Costco Wholesale Corporation (NASDAQ:COST) based on that data and determine whether they were really smart about the stock.

Is Costco Wholesale Corporation (NASDAQ:COST) a bargain? Investors who are in the know were taking a pessimistic view. The number of bullish hedge fund bets were cut by 7 recently. Costco Wholesale Corporation (NASDAQ:COST) was in 61 hedge funds’ portfolios at the end of June. The all time high for this statistics is 70. Our calculations also showed that COST isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

hedge funds vs. mutual funds

Warren Buffett of Berkshire Hathaway

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding Costco Wholesale Corporation (NASDAQ:COST).

What does smart money think about Costco Wholesale Corporation (NASDAQ:COST)?

At the end of the second quarter, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards COST over the last 20 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Berkshire Hathaway was the largest shareholder of Costco Wholesale Corporation (NASDAQ:COST), with a stake worth $1313.9 million reported as of the end of September. Trailing Berkshire Hathaway was Fisher Asset Management, which amassed a stake valued at $995.4 million. D E Shaw, Renaissance Technologies, and AQR Capital Management 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 Unio Capital allocated the biggest weight to Costco Wholesale Corporation (NASDAQ:COST), around 4.32% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, earmarking 4.25 percent of its 13F equity portfolio to COST.

Judging by the fact that Costco Wholesale Corporation (NASDAQ:COST) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of fund managers who were dropping their entire stakes by the end of the second quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising about $170.3 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also sold off its stock, about $5.7 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 7 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to Costco Wholesale Corporation (NASDAQ:COST). We will take a look at Bristol Myers Squibb Company (NYSE:BMY), T-Mobile US, Inc. (NASDAQ:TMUS), Sanofi (NASDAQ:SNY), Broadcom Inc (NASDAQ:AVGO), BHP Group (NYSE:BHP), Danaher Corporation (NYSE:DHR), and Medtronic plc (NYSE:MDT). This group of stocks’ market values are similar to COST’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMY 136 6605597 10
TMUS 113 7158311 48
SNY 24 1220415 9
AVGO 59 2378523 9
BHP 16 761158 -2
DHR 76 4287603 13
MDT 58 2705363 -1
Average 68.9 3588139 12.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 68.9 hedge funds with bullish positions and the average amount invested in these stocks was $3588 million. That figure was $4731 million in COST’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 16 bullish hedge fund positions. Costco Wholesale Corporation (NASDAQ:COST) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COST is 42.9. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. A small number of hedge funds were also right about betting on COST, though not to the same extent, as the stock returned 13.7% since Q2 and outperformed the market.

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Disclosure: None. This article was originally published at Insider Monkey.