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Is Rite Aid Corporation (RAD) A Good Stock To Buy?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Rite Aid Corporation (NYSE:RAD).

Rite Aid Corporation (NYSE:RAD) shareholders have witnessed an increase in hedge fund sentiment of late. RAD was in 16 hedge funds’ portfolios at the end of the first quarter of 2020. There were 10 hedge funds in our database with RAD holdings at the end of the previous quarter. Our calculations also showed that RAD isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the key hedge fund action encompassing Rite Aid Corporation (NYSE:RAD).

How have hedgies been trading Rite Aid Corporation (NYSE:RAD)?

At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 60% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RAD over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Millennium Management was the largest shareholder of Rite Aid Corporation (NYSE:RAD), with a stake worth $11.6 million reported as of the end of September. Trailing Millennium Management was Citadel Investment Group, which amassed a stake valued at $9.1 million. Citadel Investment Group, Balyasny Asset Management, and D E Shaw 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 Ellington allocated the biggest weight to Rite Aid Corporation (NYSE:RAD), around 0.15% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to RAD.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the biggest position in Rite Aid Corporation (NYSE:RAD). Citadel Investment Group had $9.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $5.9 million position during the quarter. The other funds with new positions in the stock are Chuck Royce’s Royce & Associates, Sander Gerber’s Hudson Bay Capital Management, and Cliff Asness’s AQR Capital Management.

Let’s now review hedge fund activity in other stocks similar to Rite Aid Corporation (NYSE:RAD). We will take a look at istar Inc (NYSE:STAR), Cooper Tire & Rubber Company (NYSE:CTB), Aphria Inc. (NASDAQ:APHA), and Veoneer, Inc. (NYSE:VNE). All of these stocks’ market caps match RAD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STAR 14 111654 -1
CTB 20 83606 3
APHA 9 5469 0
VNE 11 76220 0
Average 13.5 69237 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $46 million in RAD’s case. Cooper Tire & Rubber Company (NYSE:CTB) is the most popular stock in this table. On the other hand Aphria Inc. (NASDAQ:APHA) is the least popular one with only 9 bullish hedge fund positions. Rite Aid Corporation (NYSE:RAD) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately RAD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RAD were disappointed as the stock returned 8.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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