With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was Costco Wholesale Corporation (NASDAQ:COST).
Is COST stock a buy or sell? Costco Wholesale Corporation (NASDAQ:COST) investors should be aware of a decrease in hedge fund interest in recent months. Costco Wholesale Corporation (NASDAQ:COST) was in 61 hedge funds’ portfolios at the end of December. The all time high for this statistic is 73. There were 73 hedge funds in our database with COST positions at the end of the third quarter. Our calculations also showed that COST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article). Keeping this in mind let’s take a look at the key hedge fund action encompassing Costco Wholesale Corporation (NASDAQ:COST).
Do Hedge Funds Think COST Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in COST over the last 22 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Costco Wholesale Corporation (NASDAQ:COST), which was worth $1330.3 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $421 million worth of shares. AQR Capital Management, Two Sigma Advisors, and Bridgewater Associates 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 4.68% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, designating 4.54 percent of its 13F equity portfolio to COST.
Since Costco Wholesale Corporation (NASDAQ:COST) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers who were dropping their entire stakes in the fourth quarter. Interestingly, Renaissance Technologies dropped the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $56.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $54.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 12 funds in the fourth quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Costco Wholesale Corporation (NASDAQ:COST) but similarly valued. We will take a look at BHP Group (NYSE:BHP), Novo Nordisk A/S (NYSE:NVO), Chevron Corporation (NYSE:CVX), Eli Lilly and Company (NYSE:LLY), McDonald’s Corporation (NYSE:MCD), The Unilever Group (NYSE:UL), and Danaher Corporation (NYSE:DHR). This group of stocks’ market values are closest to COST’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.4 hedge funds with bullish positions and the average amount invested in these stocks was $3160 million. That figure was $3614 million in COST’s case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 20 bullish hedge fund positions. Costco Wholesale Corporation (NASDAQ:COST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for COST is 51.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately COST wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on COST were disappointed as the stock returned -12.5% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.