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Did Hedge Funds Drop The Ball On Laboratory Corp. of America Holdings (LH) ?

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Laboratory Corp. of America Holdings (NYSE:LH).

Laboratory Corp. of America Holdings (NYSE:LH) was in 38 hedge funds’ portfolios at the end of December. LH has seen a decrease in enthusiasm from smart money in recent months. There were 40 hedge funds in our database with LH positions at the end of the previous quarter. Our calculations also showed that LH isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Arthur B Cohen and Joseph Healey, Healthcor Management LP

We’re going to review the latest hedge fund action surrounding Laboratory Corp. of America Holdings (NYSE:LH).

How have hedgies been trading Laboratory Corp. of America Holdings (NYSE:LH)?

At the end of the fourth quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 44 hedge funds with a bullish position in LH 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.

LH_mar2019

When looking at the institutional investors followed by Insider Monkey, Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, holds the largest position in Laboratory Corp. of America Holdings (NYSE:LH). Healthcor Management LP has a $161.6 million position in the stock, comprising 5.1% of its 13F portfolio. The second largest stake is held by Ariel Investments, managed by John W. Rogers, which holds a $121.9 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass Cliff Asness’s AQR Capital Management, David Cohen and Harold Levy’s Iridian Asset Management and Wallace Weitz’s Wallace R. Weitz & Co..

Since Laboratory Corp. of America Holdings (NYSE:LH) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of funds who sold off their entire stakes by the end of the third quarter. At the top of the heap, Brian Ashford-Russell and Tim Woolley’s Polar Capital dropped the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $45.2 million in stock. Zach Schreiber’s fund, Point State Capital, also dumped its stock, about $35.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Laboratory Corp. of America Holdings (NYSE:LH) but similarly valued. We will take a look at Yum China Holdings, Inc. (NYSE:YUMC), Huntington Bancshares Incorporated (NASDAQ:HBAN), Cincinnati Financial Corporation (NASDAQ:CINF), and Synopsys, Inc. (NASDAQ:SNPS). This group of stocks’ market values match LH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YUMC 26 478433 0
HBAN 28 108675 2
CINF 22 529626 11
SNPS 34 1091171 4
Average 27.5 551976 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $552 million. That figure was $913 million in LH’s case. Synopsys, Inc. (NASDAQ:SNPS) is the most popular stock in this table. On the other hand Cincinnati Financial Corporation (NASDAQ:CINF) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Laboratory Corp. of America Holdings (NYSE:LH) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. A handful of hedge funds were also right about betting on LH as the stock returned 22.2% and outperformed the market as well.

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

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