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Hedge Funds Have Never Been This Bullish On Cerner Corporation (CERN)

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Cerner Corporation (NASDAQ:CERN).

Is Cerner Corporation (NASDAQ:CERN) a bargain? Investors who are in the know are in an optimistic mood. The number of long hedge fund positions moved up by 4 in recent months. 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 below for Q2 rankings). CERN was in 33 hedge funds' portfolios at the end of the third quarter of 2019. There were 29 hedge funds in our database with CERN holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In today’s marketplace there are plenty of indicators shareholders employ to appraise publicly traded companies. Two of the most underrated indicators are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can beat the broader indices by a superb margin (see the details here).

[caption id="attachment_735641" align="aligncenter" width="1613"] Michael Lowenstein of Kensico Capital[/caption]

Michael Lowenstein Kensico Capital

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 review the recent hedge fund action regarding Cerner Corporation (NASDAQ:CERN).

How are hedge funds trading Cerner Corporation (NASDAQ:CERN)?

At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CERN over the last 17 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

CERN_dec2019

More specifically, Starboard Value LP was the largest shareholder of Cerner Corporation (NASDAQ:CERN), with a stake worth $226.7 million reported as of the end of September. Trailing Starboard Value LP was Generation Investment Management, which amassed a stake valued at $206.9 million. Arrowstreet Capital, Kensico Capital, and Samlyn Capital 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 7.56% of its portfolio. Freshford Capital Management is also relatively very bullish on the stock, designating 4.64 percent of its 13F equity portfolio to CERN.

As one would reasonably expect, key money managers have been driving this bullishness. Echo Street Capital Management, managed by Greg Poole, initiated the most valuable position in Cerner Corporation (NASDAQ:CERN). Echo Street Capital Management had $25.4 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $10.4 million position during the quarter. The following funds were also among the new CERN investors: Daniel S. Och (founder)'s Sculptor Capital, Simon Sadler's Segantii Capital, and Louis Bacon's Moore Global Investments.

Let's go over hedge fund activity in other stocks similar to Cerner Corporation (NASDAQ:CERN). We will take a look at CoStar Group Inc (NASDAQ:CSGP), Essex Property Trust Inc (NYSE:ESS), TELUS Corporation (NYSE:TU), and M&T Bank Corporation (NYSE:MTB). This group of stocks' market valuations are closest to CERN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSGP,35,1384331,3 ESS,18,400479,-1 TU,17,301500,4 MTB,29,1247730,-2 Average,24.75,833510,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $834 million. That figure was $955 million in CERN's case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 17 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. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 5% during the fourth quarter (through the end of November) 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.

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

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