AmerisourceBergen Corporation (ABC): Hedge Funds Taking Some Chips Off The Table

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of AmerisourceBergen Corporation (NYSE:ABC) based on that data and determine whether they were really smart about the stock.

AmerisourceBergen Corporation (NYSE:ABC) has experienced a decrease in hedge fund interest recently. AmerisourceBergen Corporation (NYSE:ABC) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 42. There were 41 hedge funds in our database with ABC positions at the end of the first quarter. Our calculations also showed that ABC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

BAUPOST GROUP Seth Klarman

Seth Klarman of Baupost Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to take a look at the latest hedge fund action regarding AmerisourceBergen Corporation (NYSE:ABC).

What have hedge funds been doing with AmerisourceBergen Corporation (NYSE:ABC)?

At second quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the first quarter of 2020. On the other hand, there were a total of 36 hedge funds with a bullish position in ABC a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in AmerisourceBergen Corporation (NYSE:ABC), which was worth $191.2 million at the end of the third quarter. On the second spot was Glenview Capital which amassed $96.3 million worth of shares. Antipodes Partners, Polar Capital, and Baupost 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 MD Sass allocated the biggest weight to AmerisourceBergen Corporation (NYSE:ABC), around 4.68% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, setting aside 3.86 percent of its 13F equity portfolio to ABC.

Since AmerisourceBergen Corporation (NYSE:ABC) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few fund managers that slashed their positions entirely heading into Q3. Intriguingly, Christopher James’s Partner Fund Management sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $30 million in stock, and Kevin Molloy’s Iron Triangle Partners was right behind this move, as the fund said goodbye to about $9.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as AmerisourceBergen Corporation (NYSE:ABC) but similarly valued. We will take a look at Carvana Co. (NYSE:CVNA), Alexandria Real Estate Equities Inc (NYSE:ARE), Realty Income Corporation (NYSE:O), Hilton Worldwide Holdings Inc (NYSE:HLT), Rogers Communications Inc. (NYSE:RCI), D.R. Horton, Inc. (NYSE:DHI), and Southwest Airlines Co. (NYSE:LUV). This group of stocks’ market caps are similar to ABC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CVNA 57 3587877 5
ARE 18 53382 -11
O 17 185310 -8
HLT 53 4467377 10
RCI 16 340545 0
DHI 66 2088308 1
LUV 56 873793 11
Average 40.4 1656656 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.4 hedge funds with bullish positions and the average amount invested in these stocks was $1657 million. That figure was $647 million in ABC’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 16 bullish hedge fund positions. AmerisourceBergen Corporation (NYSE:ABC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ABC is 56.6. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately ABC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ABC investors were disappointed as the stock returned -3.3% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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