2. RH (NYSE:RH)
Number of Hedge Fund Holders: 59
RH (NYSE:RH) is a California-based retailer of home furnishings, selling furniture, lighting, textiles, decor, and outdoor and garden equipment. The company reported $8.08 in adjusted diluted EPS and $992 million in revenue for the second quarter of 2022, beating market estimates of $6.70 and $969.20 million, respectively. RH (NYSE:RH) is one of the best cyclical stocks to invest in.
William Blair analyst Phillip Blee on September 21 assumed coverage of RH (NYSE:RH) with an Outperform rating and no price target. The company recently posted better than anticipated sales and earnings for fiscal Q2 but lowered its full-year outlook on the back of a largely uncertain macro environment, the analyst told investors in a research note. While RH (NYSE:RH) profited from broader consumer trends over the last two years, the analyst believes the company remains well positioned for long-term sales growth and margin expansion, despite some short-term headwinds.
Among the hedge funds tracked by Insider Monkey, 59 funds reported owning stakes worth $2.05 billion in RH (NYSE:RH) at the end of Q2 2022, compared to 63 funds in the prior quarter worth $2.84 billion. Warren Buffett’s Berkshire Hathaway is the largest position holder in the company, with 2.17 million shares valued at $460.6 million.
Here is what GreenWood Investors specifically said about RH (NYSE:RH) in its Q2 2022 investor letter:
“Gary Friedman, the owner manager of RH (NYSE:RH), has been talking about the company climbing the luxury mountain over the past few years. Wall Street is skeptical RH can hold its leading margin profile after elevated demand during Covid, and it surely doubts that it is a luxury company, at 10x earnings. We’ve been looking to get involved in the housing ecosystem given the dramatic selloff in the sector over the past year, and our first investment here is via RH. Demographically, we expect US household formation to remain very strong after a decade of underinvestment in housing supply. Gary strategically with-held new product launches in the aftermath of Covid, when times were easiest, and is now releasing a new premium product lineup. We believe there is a lot of latent pricing power in home furnishing, and while high interest rates are trapping people in a home they would otherwise possibly leave, we believe the consumer, particularly the high-end consumer, will look to continue to upgrade their homes.
The truest test of Gary’s quest to make RH a true luxury company is in fact a recession. One of the reasons why there are few, if any, American luxury businesses, is that without a family controlling the company, optimizer-oriented management teams cannot withstand the pain that comes from not discounting a product line into weak demand. We can’t recall a single American company that has “destroyed” inventory like the French luxury companies in the face of a recession. Many have tried. Few, if any, have succeeded.
Anchored by Gary’s 21% ownership of the company, RH has a good chance. And not only is it not tempted in the current volatile environment to discount, but he is actually raising prices. With a buyback authorized for over 30% of the shares outstanding, Friedman is also not shying away from making bold investments in the current environment. He is aggressively expanding galleries and introducing new marquee European properties. The combined product launch cadence, increased prices, aggressive footprint investments and forthcoming share repurchases, not to mention low valuation, made us move off the sidelines and take a position in RH. While we are certainly not hoping for a recession, we are excited that such an environment could solidify Gary’s mission to make RH a rare American luxury brand.”
