Is CVS Health Corporation (NYSE:CVS) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is CVS Health Corporation (NYSE:CVS) an excellent stock to buy now? The best stock pickers are reducing their bets on the stock. The number of long hedge fund bets went down by 16 in recent months. Our calculations also showed that CVS isn't among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a gander at the recent hedge fund action encompassing CVS Health Corporation (NYSE:CVS).
Hedge fund activity in CVS Health Corporation (NYSE:CVS)
At Q1's end, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. On the other hand, there were a total of 50 hedge funds with a bullish position in CVS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in CVS Health Corporation (NYSE:CVS), which was worth $134.3 million at the end of the first quarter. On the second spot was Adage Capital Management which amassed $87.6 million worth of shares. Moreover, D E Shaw, Citadel Investment Group, and Armistice Capital were also bullish on CVS Health Corporation (NYSE:CVS), allocating a large percentage of their portfolios to this stock.
Due to the fact that CVS Health Corporation (NYSE:CVS) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies that slashed their positions entirely heading into Q3. Interestingly, Larry Robbins's Glenview Capital dumped the largest stake of the "upper crust" of funds watched by Insider Monkey, totaling close to $556.3 million in stock. Doug Silverman and Alexander Klabin's fund, Senator Investment Group, also sold off its stock, about $81.9 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 16 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to CVS Health Corporation (NYSE:CVS). We will take a look at Automatic Data Processing (NASDAQ:ADP), QUALCOMM, Incorporated (NASDAQ:QCOM), BlackRock, Inc. (NYSE:BLK), and Intuit Inc. (NASDAQ:INTU). This group of stocks' market valuations are similar to CVS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADP,39,2852967,-3 QCOM,45,1905850,-6 BLK,45,753724,9 INTU,42,2351847,3 Average,42.75,1966097,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.75 hedge funds with bullish positions and the average amount invested in these stocks was $1966 million. That figure was $908 million in CVS's case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand Automatic Data Processing (NASDAQ:ADP) is the least popular one with only 39 bullish hedge fund positions. Compared to these stocks CVS Health Corporation (NYSE:CVS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CVS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CVS were disappointed as the stock returned -1.2% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.