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2019 Review: Most Favored Hedge Fund Stocks vs. Cardinal Health, Inc. (CAH)

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by 14.5 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Cardinal Health, Inc. (NYSE:CAH) investors should pay attention to a decrease in hedge fund interest of late. CAH was in 25 hedge funds’ portfolios at the end of the third quarter of 2019. There were 28 hedge funds in our database with CAH holdings at the end of the previous quarter. Our calculations also showed that CAH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the 21st century investor’s toolkit there are numerous formulas shareholders use to value stocks. A pair of the most innovative formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top hedge fund managers can trounce the market by a healthy margin (see the details here).

Jeffrey Talpins of Element Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s take a gander at the latest hedge fund action regarding Cardinal Health, Inc. (NYSE:CAH).

How are hedge funds trading Cardinal Health, Inc. (NYSE:CAH)?

Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in CAH a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the biggest position in Cardinal Health, Inc. (NYSE:CAH), worth close to $173.1 million, accounting for 0.9% of its total 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $119.7 million position; 0.1% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish encompass Renaissance Technologies, David E. Shaw’s D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Healthcare Value Capital allocated the biggest weight to Cardinal Health, Inc. (NYSE:CAH), around 2.98% of its 13F portfolio. RR Partners is also relatively very bullish on the stock, designating 2.45 percent of its 13F equity portfolio to CAH.

Seeing as Cardinal Health, Inc. (NYSE:CAH) has faced falling interest from hedge fund managers, logic holds that there is a sect of hedge funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Israel Englander’s Millennium Management said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling close to $34 million in stock, and Michael Burry’s Scion Asset Management was right behind this move, as the fund dumped about $9.4 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Cardinal Health, Inc. (NYSE:CAH). These stocks are CNH Industrial NV (NYSE:CNHI), Grifols SA (NASDAQ:GRFS), Concho Resources Inc. (NYSE:CXO), and Enel Americas S.A. (NYSE:ENIA). This group of stocks’ market valuations resemble CAH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNHI 14 341649 0
GRFS 19 361224 3
CXO 28 387562 1
ENIA 8 180580 -3
Average 17.25 317754 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $776 million in CAH’s case. Concho Resources Inc. (NYSE:CXO) is the most popular stock in this table. On the other hand Enel Americas S.A. (NYSE:ENIA) is the least popular one with only 8 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. Unfortunately CAH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CAH were disappointed as the stock returned 18% in 2019 and trailed 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 many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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