We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 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 Laboratory Corporation of America Holdings (NYSE:LH).
Laboratory Corporation of America Holdings (NYSE:LH) was in 40 hedge funds' portfolios at the end of the third quarter of 2019. LH shareholders have witnessed an increase in enthusiasm from smart money of late. There were 38 hedge funds in our database with LH holdings at the end of the previous quarter. Our calculations also showed that LH isn't among the 30 most popular stocks among hedge funds.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
[caption id="attachment_26340" align="aligncenter" width="467"] Ken Griffin of Citadel Investment 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. We're going to take a gander at the key hedge fund action encompassing Laboratory Corporation of America Holdings (NYSE:LH).
How are hedge funds trading Laboratory Corporation of America Holdings (NYSE:LH)?
At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LH over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Melvin Capital Management held the most valuable stake in Laboratory Corporation of America Holdings (NYSE:LH), which was worth $339.4 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $218.4 million worth of shares. Ariel Investments, Wallace R. Weitz & Co., and Citadel Investment Group 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 Tavio Capital allocated the biggest weight to Laboratory Corporation of America Holdings (NYSE:LH), around 17.4% of its portfolio. Endurant Capital Management is also relatively very bullish on the stock, setting aside 4.45 percent of its 13F equity portfolio to LH.
As one would reasonably expect, specific money managers were breaking ground themselves. Healthcor Management, managed by Arthur B Cohen and Joseph Healey, assembled the largest position in Laboratory Corporation of America Holdings (NYSE:LH). Healthcor Management had $79.5 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $2.9 million position during the quarter. The other funds with new positions in the stock are Michael Kharitonov and Jon David McAuliffe's Voleon Capital and Lee Ainslie's Maverick Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Laboratory Corporation of America Holdings (NYSE:LH) but similarly valued. We will take a look at Nasdaq, Inc. (NASDAQ:NDAQ), Markel Corporation (NYSE:MKL), First Republic Bank (NYSE:FRC), and W.W. Grainger, Inc. (NYSE:GWW). All of these stocks' market caps match LH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NDAQ,21,134209,1 MKL,28,1394617,3 FRC,19,815413,-3 GWW,22,526223,1 Average,22.5,717616,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $718 million. That figure was $1435 million in LH's case. Markel Corporation (NYSE:MKL) is the most popular stock in this table. On the other hand First Republic Bank (NYSE:FRC) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Laboratory Corporation of America Holdings (NYSE:LH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately LH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LH were disappointed as the stock returned 1% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.