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Is CERN A Good Stock To Buy According To Hedge Funds?

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Debasis Saha
·6 min read
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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Cerner Corporation (NASDAQ:CERN), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is CERN a good stock to buy? Prominent investors were getting less bullish. The number of bullish hedge fund positions retreated by 4 recently. Cerner Corporation (NASDAQ:CERN) was in 34 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 41. Our calculations also showed that CERN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 38 hedge funds in our database with CERN holdings at the end of June.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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. Keeping this in mind let's take a peek at the recent hedge fund action encompassing Cerner Corporation (NASDAQ:CERN).

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

At third quarter's end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in CERN over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CERN A Good Stock To Buy?
Is CERN A Good Stock To Buy?

More specifically, Generation Investment Management was the largest shareholder of Cerner Corporation (NASDAQ:CERN), with a stake worth $221.3 million reported as of the end of September. Trailing Generation Investment Management was Starboard Value LP, which amassed a stake valued at $171.8 million. Arrowstreet Capital, AQR Capital Management, and Balyasny Asset Management 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 Starboard Value LP allocated the biggest weight to Cerner Corporation (NASDAQ:CERN), around 5.1% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, designating 3.12 percent of its 13F equity portfolio to CERN.

Judging by the fact that Cerner Corporation (NASDAQ:CERN) has witnessed a decline in interest from hedge fund managers, it's safe to say that there was a specific group of fund managers who were dropping their entire stakes in the third quarter. At the top of the heap, Greg Poole's Echo Street Capital Management sold off the biggest stake of the 750 funds watched by Insider Monkey, comprising close to $42.1 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $27.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cerner Corporation (NASDAQ:CERN) but similarly valued. These stocks are Wheaton Precious Metals Corp. (NYSE:WPM), Chewy, Inc. (NYSE:CHWY), Nokia Corporation (NYSE:NOK), GoodRx Holdings, Inc. (NASDAQ:GDRX), Barclays PLC (NYSE:BCS), Dollar Tree, Inc. (NASDAQ:DLTR), and Tyson Foods, Inc. (NYSE:TSN). This group of stocks' market valuations are similar to CERN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WPM,29,932017,8 CHWY,46,484642,2 NOK,21,173335,-5 GDRX,41,698252,41 BCS,6,34848,-2 DLTR,50,1912733,-10 TSN,36,618426,-1 Average,32.7,693465,4.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $693 million. That figure was $790 million in CERN's case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 6 bullish hedge fund positions. Cerner Corporation (NASDAQ:CERN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CERN is 57.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately CERN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CERN were disappointed as the stock returned 7.3% since the end of September (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.

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