Were Hedge Funds Right About Piling Into Ross Stores (ROST)?

At Insider Monkey, we pore over the filings of nearly 887 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31st. In this article, we will use that wealth of knowledge to determine whether or not Ross Stores, Inc. (NASDAQ:ROST) makes for a good investment right now.

Ross Stores, Inc. (NASDAQ:ROST) investors should pay attention to an increase in hedge fund interest of late. Ross Stores, Inc. (NASDAQ:ROST) was in 57 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 50. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 46 hedge funds in our database with ROST positions at the end of the third quarter. Our calculations also showed that ROST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 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 124 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.

Richard Gerson of Falcon Edge Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a gander at the latest hedge fund action encompassing Ross Stores, Inc. (NASDAQ:ROST).

Do Hedge Funds Think ROST Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ROST over the last 22 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin’s Citadel Investment Group has the most valuable position in Ross Stores, Inc. (NASDAQ:ROST), worth close to $205.9 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Alkeon Capital Management, managed by Panayotis Takis Sparaggis, which holds a $193 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise Aaron Cowen’s Suvretta Capital Management, Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital and Jonathan Auerbach’s Hound Partners. In terms of the portfolio weights assigned to each position 11 Capital Partners allocated the biggest weight to Ross Stores, Inc. (NASDAQ:ROST), around 7.19% of its 13F portfolio. Masterton Capital Management is also relatively very bullish on the stock, setting aside 5.89 percent of its 13F equity portfolio to ROST.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, established the largest position in Ross Stores, Inc. (NASDAQ:ROST). Alkeon Capital Management had $193 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $58.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Jack Woodruff’s Candlestick Capital Management, Jason McDougall’s 11 Capital Partners, and Louis Bacon’s Moore Global Investments.

Let’s also examine hedge fund activity in other stocks similar to Ross Stores, Inc. (NASDAQ:ROST). These stocks are Twitter Inc (NYSE:TWTR), TAL Education Group (NYSE:TAL), Marriott International Inc (NASDAQ:MAR), Enterprise Products Partners L.P. (NYSE:EPD), ConocoPhillips (NYSE:COP), General Dynamics Corporation (NYSE:GD), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). All of these stocks’ market caps are closest to ROST’s market cap.

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As you can see these stocks had an average of 47.1 hedge funds with bullish positions and the average amount invested in these stocks was $2404 million. That figure was $1309 million in ROST’s case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand TAL Education Group (NYSE:TAL) is the least popular one with only 29 bullish hedge fund positions. Ross Stores, Inc. (NASDAQ:ROST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ROST is 68.6. 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. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 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 6.9% since the end of December (through 4/30) 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 since 2019.

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