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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 887 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31st holdings, data that is available nowhere else. Should you consider McKesson Corporation (NYSE:MCK) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is McKesson (MCK) stock a buy or sell? The smart money was cutting their exposure. The number of bullish hedge fund bets dropped by 3 in recent months. McKesson Corporation (NYSE:MCK) was in 51 hedge funds' portfolios at the end of December. The all time high for this statistic is 68. Our calculations also showed that MCK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 54 hedge funds in our database with MCK positions at the end of the third quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Now we're going to go over the recent hedge fund action surrounding McKesson Corporation (NYSE:MCK).
Do Hedge Funds Think MCK Is A Good Stock To Buy Now?
At the end of December, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the third quarter of 2020. On the other hand, there were a total of 51 hedge funds with a bullish position in MCK a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of McKesson Corporation (NYSE:MCK), with a stake worth $537.3 million reported as of the end of December. Trailing Pzena Investment Management was Glenview Capital, which amassed a stake valued at $203.1 million. AQR Capital Management, Millennium Management, and D E Shaw 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 HealthInvest Partners AB allocated the biggest weight to McKesson Corporation (NYSE:MCK), around 6.1% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, dishing out 5.86 percent of its 13F equity portfolio to MCK.
Because McKesson Corporation (NYSE:MCK) has witnessed declining sentiment from hedge fund managers, logic holds that there was a specific group of fund managers who were dropping their full holdings last quarter. Interestingly, Seth Klarman's Baupost Group said goodbye to the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $248.6 million in stock, and Louis Bacon's Moore Global Investments was right behind this move, as the fund cut about $21.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as McKesson Corporation (NYSE:MCK) but similarly valued. These stocks are AMETEK, Inc. (NYSE:AME), American Water Works Company, Inc. (NYSE:AWK), Discover Financial Services (NYSE:DFS), Southwest Airlines Co. (NYSE:LUV), Corning Incorporated (NYSE:GLW), Splunk Inc (NASDAQ:SPLK), and NatWest Group plc (NYSE:NWG). This group of stocks' market valuations are similar to MCK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AME,31,956468,-6 AWK,36,958304,5 DFS,43,729763,-4 LUV,55,757534,4 GLW,39,334973,3 SPLK,47,1036156,3 NWG,3,759,1 Average,36.3,681994,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $682 million. That figure was $1768 million in MCK's case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table. On the other hand NatWest Group plc (NYSE:NWG) is the least popular one with only 3 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 70.7. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on MCK as the stock returned 9.4% since the end of Q4 (through 3/19) 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.