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 McKesson Corporation (NYSE:MCK).
McKesson Corporation (NYSE:MCK) investors should be aware of an increase in activity from the world's largest hedge funds lately. MCK was in 39 hedge funds' portfolios at the end of September. There were 36 hedge funds in our database with MCK positions at the end of the previous quarter. Our calculations also showed that MCK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26423" align="aligncenter" width="600"] Seth Klarman of Baupost Group[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the recent hedge fund action encompassing McKesson Corporation (NYSE:MCK).
How are hedge funds trading McKesson Corporation (NYSE:MCK)?
At Q3's end, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MCK over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Larry Robbins's Glenview Capital has the largest position in McKesson Corporation (NYSE:MCK), worth close to $547.3 million, corresponding to 5.8% of its total 13F portfolio. The second most bullish fund manager is Pzena Investment Management, managed by Richard S. Pzena, which holds a $498.3 million position; 2.7% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism comprise Cliff Asness's AQR Capital Management, Seth Klarman's Baupost Group and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Tavio Capital allocated the biggest weight to McKesson Corporation (NYSE:MCK), around 13.4% of its portfolio. Glenview Capital is also relatively very bullish on the stock, designating 5.76 percent of its 13F equity portfolio to MCK.
As one would reasonably expect, specific money managers have jumped into McKesson Corporation (NYSE:MCK) headfirst. Partner Fund Management, managed by Christopher James, assembled the largest call position in McKesson Corporation (NYSE:MCK). Partner Fund Management had $22.9 million invested in the company at the end of the quarter. Brad Farber's Atika Capital also made a $13.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Caldwell's Chiron Investment Management, Michael Castor's Sio Capital, and Matthew Tewksbury's Stevens Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as McKesson Corporation (NYSE:MCK) but similarly valued. These stocks are Sprint Corporation (NYSE:S), Lululemon Athletica inc. (NASDAQ:LULU), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), and FleetCor Technologies, Inc. (NYSE:FLT). All of these stocks' market caps are closest to MCK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position S,23,885703,-2 LULU,46,1527406,-3 WLTW,35,1905841,2 FLT,42,2138351,2 Average,36.5,1614325,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1614 million. That figure was $1982 million in MCK's case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand Sprint Corporation (NYSE:S) is the least popular one with only 23 bullish hedge fund positions. McKesson Corporation (NYSE:MCK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on MCK, though not to the same extent, as the stock returned 6.1% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.