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Why Costco Wholesale Corporation (COST)’s Shares Jumped on Thursday?

Costco Wholesale Corporation (NASDAQ:COST) shares have surged by more than 5% after the bulk goods store reported fiscal third quarter earnings of $1.24 per share versus estimates of $1.22 per share. Sales were $26.77 billion, up by 2.6% year-over-year, but $300 million below estimates. The strong dollar and changing gas prices had a poignant effect on comps as Costco’s comparable sales would have increased 3%, instead of the registered flat growth, if the dollar had remained leveled and gas prices didn’t change. Costco Wholesale Corporation (NASDAQ:COST) currently operates 705 warehouses, including 493 in the United States and its territories, and 212 outside of the U.S.

The good results will most likely surprise investors among hedge funds, since Costco Wholesale Corporation registered a slight increase in popularity among the funds tracked by Insider Monkey. Costco Wholesale Corporation (NASDAQ:COST) was in 43 hedge funds’ portfolios at the end of the first quarter of 2016, compared to 42 funds a quarter earlier. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Lowe’s Companies, Inc. (NYSE:LOW), Lockheed Martin Corporation (NYSE:LMT), and Union Pacific Corporation (NYSE:UNP) to gather more data points.

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In today’s marketplace there are plenty of formulas stock market investors can use to appraise their stock investments. A duo of the less known formulas are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the elite hedge fund managers can outclass their index-focused peers by a very impressive amount (see the details here).

According to Insider Monkey’s hedge fund database, Warren Buffett’s Berkshire Hathaway has the most valuable position in Costco Wholesale Corporation (NASDAQ:COST), worth close to $682.9 million, comprising 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, managed by Jim Simons, which holds a $174.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions comprise Panayotis Takis Sparaggis’s Alkeon Capital Management, Richard Chilton’s Chilton Investment Company and Phill Gross and Robert Atchinson’s Adage Capital Management.

On the next page, we are going to take a look at several investors that added Costco Wholesale Corporation to their equity portfolios between January and March.

As one would reasonably expect, some big names have jumped into Costco Wholesale Corporation (NASDAQ:COST) headfirst. Melvin Capital Management, led by Gabriel Plotkin, established the biggest position in Costco Wholesale Corporation (NASDAQ:COST). Melvin Capital Management had $55.2 million invested in the company at the end of the first quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $47.3 million position during the quarter. The following funds were also among the new COST investors: Steve Cohen’s Point72 Asset Management, Matthew Tewksbury’s Stevens Capital Management, and James Parsons’s Junto Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Costco Wholesale Corporation (NASDAQ:COST). These stocks are Lowe’s Companies, Inc. (NYSE:LOW), Lockheed Martin Corporation (NYSE:LMT), Union Pacific Corporation (NYSE:UNP), and Goldman Sachs Group, Inc. (NYSE:GS). This group of stocks’ market values match COST’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOW 64 4077477 -2
LMT 37 867131 0
UNP 54 1400670 -2
GS 69 4643865 10

As you can see these stocks had an average of 56 hedge funds with bullish positions and the average amount invested in these stocks was $2747 million. That figure was $1899 million in COST’s case. Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Lockheed Martin Corporation (NYSE:LMT) is the least popular one with only 37 bullish hedge fund positions. Costco Wholesale Corporation (NASDAQ:COST) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GS might be a better candidate to consider a long position.

Disclosure: None

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