Were Hedge Funds Wrong About Ross Stores, Inc. (ROST)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Ross Stores, Inc. (NASDAQ:ROST).

Is Ross Stores, Inc. (NASDAQ:ROST) worth your attention right now? Money managers were turning bullish. The number of long hedge fund bets improved by 1 recently. Ross Stores, Inc. (NASDAQ:ROST) was in 50 hedge funds’ portfolios at the end of June. The all time high for this statistics is 49. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ROST 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). There were 49 hedge funds in our database with ROST positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most investors, hedge funds are viewed as unimportant, outdated investment tools of yesteryear. While there are more than 8000 funds trading today, Our experts hone in on the masters of this group, approximately 850 funds. Most estimates calculate that this group of people preside over most of the hedge fund industry’s total asset base, and by keeping an eye on their highest performing investments, Insider Monkey has revealed several investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best high dividend stocks to buy to identify solid dividend stocks trading at rock bottom prices. 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s view the latest hedge fund action regarding Ross Stores, Inc. (NASDAQ:ROST).

Hedge fund activity in Ross Stores, Inc. (NASDAQ:ROST)

Heading into the third quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the first quarter of 2020. By comparison, 32 hedge funds held shares or bullish call options in ROST a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Ross Stores, Inc. (NASDAQ:ROST) was held by Adage Capital Management, which reported holding $138.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $103.6 million position. Other investors bullish on the company included Millennium Management, Point72 Asset Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Highside Global Management allocated the biggest weight to Ross Stores, Inc. (NASDAQ:ROST), around 5.79% of its 13F portfolio. Galibier Capital Management is also relatively very bullish on the stock, designating 4.72 percent of its 13F equity portfolio to ROST.

Consequently, key hedge funds have jumped into Ross Stores, Inc. (NASDAQ:ROST) headfirst. Junto Capital Management, managed by James Parsons, created the most outsized position in Ross Stores, Inc. (NASDAQ:ROST). Junto Capital Management had $42.2 million invested in the company at the end of the quarter. Joseph Sirdevan’s Galibier Capital Management also made a $14.7 million investment in the stock during the quarter. The following funds were also among the new ROST investors: Robert Pitts’s Steadfast Capital Management, Jinghua Yan’s TwinBeech Capital, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital.

Let’s go over hedge fund activity in other stocks similar to Ross Stores, Inc. (NASDAQ:ROST). We will take a look at Dow Inc. (NYSE:DOW), KLA Corporation (NASDAQ:KLAC), ICICI Bank Limited (NYSE:IBN), IHS Markit Ltd. (NYSE:INFO), Canadian Imperial Bank of Commerce (NYSE:CM), EOG Resources Inc (NYSE:EOG), and Royalty Pharma plc (NASDAQ:RPRX). This group of stocks’ market valuations are closest to ROST’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $921 million. That figure was $767 million in ROST’s case. EOG Resources Inc (NYSE:EOG) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ross Stores, Inc. (NASDAQ:ROST) is more popular among hedge funds. Our overall hedge fund sentiment score for ROST is 86. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately ROST wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ROST were disappointed as the stock returned 12% since the end of the second quarter (through 10/23) 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 most of these stocks already outperformed the market in 2020.

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