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Was The Smart Money Right About Piling Into Cardinal Health, Inc. (CAH)?

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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Cardinal Health, Inc. (NYSE:CAH), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Cardinal Health, Inc. (NYSE:CAH) has experienced an increase in activity from the world's largest hedge funds recently. Cardinal Health, Inc. (NYSE:CAH) was in 49 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 49. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 45 hedge funds in our database with CAH holdings at the end of September. Our calculations also showed that CAH isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Noam Gottesman GLG Partners
Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

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. Keeping this in mind we're going to take a peek at the recent hedge fund action surrounding Cardinal Health, Inc. (NYSE:CAH).

Do Hedge Funds Think CAH Is A Good Stock To Buy Now?

At fourth quarter's end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in CAH over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CAH A Good Stock To Buy?
Is CAH A Good Stock To Buy?

Among these funds, D E Shaw held the most valuable stake in Cardinal Health, Inc. (NYSE:CAH), which was worth $176.4 million at the end of the fourth quarter. On the second spot was Pzena Investment Management which amassed $171.4 million worth of shares. AQR Capital Management, Citadel Investment Group, and GLG Partners 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 Cardinal Health, Inc. (NYSE:CAH), around 5.99% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, dishing out 4.51 percent of its 13F equity portfolio to CAH.

As one would reasonably expect, specific money managers were leading the bulls' herd. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Cardinal Health, Inc. (NYSE:CAH). Point72 Asset Management had $9.1 million invested in the company at the end of the quarter. Anders Hallberg and Carl Bennet's HealthInvest Partners AB also initiated a $9.1 million position during the quarter. The other funds with brand new CAH positions are Krishen Sud's Sivik Global Healthcare, Nicholas Bagnall's Te Ahumairangi Investment Management, and Greg Poole's Echo Street Capital Management.

Let's go over hedge fund activity in other stocks similar to Cardinal Health, Inc. (NYSE:CAH). These stocks are Albemarle Corporation (NYSE:ALB), Live Nation Entertainment, Inc. (NYSE:LYV), The AES Corporation (NYSE:AES), KB Financial Group, Inc. (NYSE:KB), Lyft, Inc. (NASDAQ:LYFT), MGM Resorts International (NYSE:MGM), and Darden Restaurants, Inc. (NYSE:DRI). This group of stocks' market caps are similar to CAH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALB,21,126278,-6 LYV,46,1629672,-4 AES,38,900730,6 KB,5,42629,-1 LYFT,52,1166503,20 MGM,44,2171039,3 DRI,42,1410846,1 Average,35.4,1063957,2.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $1064 million. That figure was $1142 million in CAH's case. Lyft, Inc. (NASDAQ:LYFT) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 5 bullish hedge fund positions. Cardinal Health, Inc. (NYSE:CAH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CAH is 85.8. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on CAH, though not to the same extent, as the stock returned 13.5% since Q4 (through April 30th) and outperformed the market as well.

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

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