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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to McKesson Corporation (NYSE:MCK) changed recently.
Is MCK a good stock to buy now? The best stock pickers were getting less optimistic. The number of bullish hedge fund bets fell by 7 recently. McKesson Corporation (NYSE:MCK) was in 54 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 68. 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 for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Charles Clough of Clough Capital Partners
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 we're going to view the recent hedge fund action surrounding McKesson Corporation (NYSE:MCK).
How have hedgies been trading McKesson Corporation (NYSE:MCK)?
At third quarter's end, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in MCK over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pzena Investment Management held the most valuable stake in McKesson Corporation (NYSE:MCK), which was worth $496.7 million at the end of the third quarter. On the second spot was Baupost Group which amassed $248.6 million worth of shares. Glenview Capital, AQR Capital Management, and Millennium Management 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 Glenview Capital allocated the biggest weight to McKesson Corporation (NYSE:MCK), around 5.92% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, setting aside 4.91 percent of its 13F equity portfolio to MCK.
Since McKesson Corporation (NYSE:MCK) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few fund managers that decided to sell off their entire stakes heading into Q4. Interestingly, Aaron Cowen's Suvretta Capital Management dumped the largest position of the 750 funds watched by Insider Monkey, totaling about $89 million in stock, and Doug Silverman and Alexander Klabin's Senator Investment Group was right behind this move, as the fund sold off about $84.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 7 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as McKesson Corporation (NYSE:MCK) but similarly valued. We will take a look at The Williams Companies, Inc. (NYSE:WMB), Sun Life Financial Inc. (NYSE:SLF), New Oriental Education & Technology Group Inc. (NYSE:EDU), Unity Software Inc. (NYSE:U), American International Group Inc (NYSE:AIG), Genmab A/S (NASDAQ:GMAB), and Hilton Worldwide Holdings Inc (NYSE:HLT). This group of stocks' market valuations are closest to MCK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WMB,38,581626,-3 SLF,13,28463,-1 EDU,40,1753600,1 U,35,6701726,35 AIG,38,1770145,-2 GMAB,18,203437,3 HLT,57,5109622,4 Average,34.1,2306946,5.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $2307 million. That figure was $1770 million in MCK's case. Hilton Worldwide Holdings Inc (NYSE:HLT) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 13 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 overall hedge fund sentiment score for MCK is 68.4. 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 MCK as the stock returned 21.7% 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.