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Hedge Funds Have Never Been This Bullish On RH (RH)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding RH (NYSE:RH) and determine whether hedge funds had an edge regarding this stock.

RH (NYSE:RH) has seen an increase in hedge fund sentiment lately. RH (NYSE:RH) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 30 hedge funds in our database with RH positions at the end of the first quarter. Our calculations also showed that RH 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.

In today’s marketplace there are many methods stock market investors have at their disposal to value publicly traded companies. A duo of the most underrated methods are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top hedge fund managers can outclass the S&P 500 by a significant amount (see the details here).

Warren Buffett of Berkshire Hathaway

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let’s take a gander at the key hedge fund action regarding RH (NYSE:RH).

Hedge fund activity in RH (NYSE:RH)

At the end of June, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in RH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is RH A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in RH (NYSE:RH), which was worth $425.2 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $89.6 million worth of shares. D E Shaw, Citadel Investment Group, 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 MIG Capital allocated the biggest weight to RH (NYSE:RH), around 5.5% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, setting aside 5.06 percent of its 13F equity portfolio to RH.

Now, some big names were breaking ground themselves. D1 Capital Partners, managed by Daniel Sundheim, created the most outsized position in RH (NYSE:RH). D1 Capital Partners had $49.8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $16.8 million position during the quarter. The other funds with new positions in the stock are Clint Carlson’s Carlson Capital, Brad Stephens’s Six Columns Capital, and Louis Bacon’s Moore Global Investments.

Let’s now review hedge fund activity in other stocks similar to RH (NYSE:RH). We will take a look at KT Corporation (NYSE:KT), SiteOne Landscape Supply, Inc. (NYSE:SITE), Helen of Troy Limited (NASDAQ:HELE), National Oilwell Varco, Inc. (NYSE:NOV), Everbridge, Inc. (NASDAQ:EVBG), The Mosaic Company (NYSE:MOS), and Kemper Corporation (NYSE:KMPR). This group of stocks’ market values match RH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KT 12 166879 -3
SITE 18 63257 -1
HELE 13 152121 -3
NOV 30 621557 1
EVBG 43 1161901 12
MOS 32 450160 3
KMPR 16 37427 3
Average 23.4 379043 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $379 million. That figure was $1040 million in RH’s case. Everbridge, Inc. (NASDAQ:EVBG) is the most popular stock in this table. On the other hand KT Corporation (NYSE:KT) is the least popular one with only 12 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 85.2. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on RH as the stock returned 32.8% since Q2 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.