At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Rite Aid Corporation (NYSE:RAD).
Is RAD a good stock to buy now? Rite Aid Corporation (NYSE:RAD) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. Rite Aid Corporation (NYSE:RAD) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 54. Our calculations also showed that RAD isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to view the latest hedge fund action encompassing Rite Aid Corporation (NYSE:RAD).
Do Hedge Funds Think RAD Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the second quarter of 2020. On the other hand, there were a total of 9 hedge funds with a bullish position in RAD a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Rite Aid Corporation (NYSE:RAD) was held by Arrowstreet Capital, which reported holding $14.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $8.7 million position. Other investors bullish on the company included Royce & Associates, Citadel Investment Group, and OZ Management. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Rite Aid Corporation (NYSE:RAD), around 0.06% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to RAD.
Since Rite Aid Corporation (NYSE:RAD) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there exists a select few hedge funds that slashed their entire stakes last quarter. Interestingly, Renaissance Technologies sold off the biggest investment of the 750 funds followed by Insider Monkey, worth about $12.6 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund said goodbye to about $0.4 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Rite Aid Corporation (NYSE:RAD). These stocks are Quotient Limited (NASDAQ:QTNT), Odonate Therapeutics, Inc. (NASDAQ:ODT), ViewRay, Inc. (NASDAQ:VRAY), Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX), 111, Inc. (NASDAQ:YI), AMC Entertainment Holdings Inc (NYSE:AMC), and Banco BBVA Argentina S.A. (NYSE:BBAR). This group of stocks’ market values resemble RAD’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 12.6 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $32 million in RAD’s case. Quotient Limited (NASDAQ:QTNT) is the most popular stock in this table. On the other hand Banco BBVA Argentina S.A. (NYSE:BBAR) is the least popular one with only 3 bullish hedge fund positions. Rite Aid Corporation (NYSE:RAD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RAD is 23.8. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on RAD as the stock returned 91% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.