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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of CVS Health Corporation (NYSE:CVS).
Is CVS a good stock to buy now? Hedge funds were in a pessimistic mood. The number of long hedge fund bets went down by 4 lately. CVS Health Corporation (NYSE:CVS) was in 61 hedge funds' portfolios at the end of September. The all time high for this statistics is 77. Our calculations also showed that CVS 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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.
Phillip Gross of Adage Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium 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 gander at the latest hedge fund action regarding CVS Health Corporation (NYSE:CVS).
How have hedgies been trading CVS Health Corporation (NYSE:CVS)?
At the end of the third quarter, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CVS over the last 21 quarters. 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 CVS Health Corporation (NYSE:CVS) was held by D E Shaw, which reported holding $284.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $172.4 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Adage Capital Management. In terms of the portfolio weights assigned to each position Scion Asset Management allocated the biggest weight to CVS Health Corporation (NYSE:CVS), around 8.17% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, designating 3.31 percent of its 13F equity portfolio to CVS.
Seeing as CVS Health Corporation (NYSE:CVS) has experienced falling interest from hedge fund managers, logic holds that there were a few money managers who sold off their positions entirely by the end of the third quarter. Interestingly, Jeffrey Altman's Owl Creek Asset Management dumped the biggest position of all the hedgies watched by Insider Monkey, worth about $62.1 million in stock, and Ryan Caldwell's Chiron Investment Management was right behind this move, as the fund said goodbye to about $14.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as CVS Health Corporation (NYSE:CVS) but similarly valued. These stocks are Morgan Stanley (NYSE:MS), Canadian National Railway Company (NYSE:CNI), Rio Tinto Group (NYSE:RIO), Sea Limited (NYSE:SE), Prologis Inc (NYSE:PLD), Square, Inc. (NYSE:SQ), and Altria Group Inc (NYSE:MO). This group of stocks' market caps are similar to CVS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MS,70,4166963,9 CNI,26,2224542,-2 RIO,23,1276002,3 SE,95,7818359,13 PLD,33,518397,-2 SQ,73,6501994,7 MO,47,1259705,4 Average,52.4,3395137,4.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 52.4 hedge funds with bullish positions and the average amount invested in these stocks was $3395 million. That figure was $1172 million in CVS's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 23 bullish hedge fund positions. CVS Health Corporation (NYSE:CVS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CVS is 51.2. 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 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on CVS as the stock returned 20.2% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.