Is Costco Wholesale Corporation (NASDAQ:COST) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Costco Wholesale Corporation (NASDAQ:COST) investors should pay attention to an increase in enthusiasm from smart money in recent months. Our calculations also showed that COST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Warren Buffett of Berkshire Hathaway
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a gander at the latest hedge fund action surrounding Costco Wholesale Corporation (NASDAQ:COST).
What does smart money think about Costco Wholesale Corporation (NASDAQ:COST)?
At Q4’s end, a total of 70 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 48 hedge funds with a bullish position in COST a year ago. So, let’s examine 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 Costco Wholesale Corporation (NASDAQ:COST), which was worth $1273.7 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $893 million worth of shares. Two Sigma Advisors, D E Shaw, 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 Chilton Investment Company allocated the biggest weight to Costco Wholesale Corporation (NASDAQ:COST), around 4.01% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, setting aside 3.42 percent of its 13F equity portfolio to COST.
As aggregate interest increased, key money managers have jumped into Costco Wholesale Corporation (NASDAQ:COST) headfirst. Interval Partners, managed by Gregg Moskowitz, initiated the largest position in Costco Wholesale Corporation (NASDAQ:COST). Interval Partners had $17 million invested in the company at the end of the quarter. Larry Chen and Terry Zhang’s Tairen Capital also made a $13.9 million investment in the stock during the quarter. The other funds with brand new COST positions are Peter Muller’s PDT Partners, Brian Scudieri’s Kehrs Ridge Capital, and Robert Pitts’s Steadfast Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Costco Wholesale Corporation (NASDAQ:COST). We will take a look at United Technologies Corporation (NYSE:UTX), BP plc (NYSE:BP), Paypal Holdings Inc (NASDAQ:PYPL), and Honeywell International Inc. (NYSE:HON). All of these stocks’ market caps are similar to COST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UTX | 81 | 7021856 | 7 |
| BP | 40 | 1634365 | 1 |
| PYPL | 126 | 6225698 | 22 |
| HON | 55 | 2282262 | -3 |
| Average | 75.5 | 4291045 | 6.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 75.5 hedge funds with bullish positions and the average amount invested in these stocks was $4291 million. That figure was $4402 million in COST’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand BP plc (NYSE:BP) is the least popular one with only 40 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 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 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. A small number of hedge funds were also right about betting on COST as the stock returned 5.4% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
