With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter of 2021. One of these stocks was Cardinal Health, Inc. (NYSE:CAH).
Is Cardinal Health, Inc. (NYSE:CAH) a bargain? The smart money was selling. The number of bullish hedge fund bets decreased by 10 in recent months. Cardinal Health, Inc. (NYSE:CAH) was in 39 hedge funds’ portfolios at the end of March. The all time high for this statistic is 49. Our calculations also showed that CAH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 49 hedge funds in our database with CAH positions at the end of the fourth quarter.
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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
John Rogers of Ariel Investments
At Insider Monkey, we scour multiple sources to uncover 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 battery 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. Now we’re going to review the recent hedge fund action encompassing Cardinal Health, Inc. (NYSE:CAH).
Do Hedge Funds Think CAH Is A Good Stock To Buy Now?
At first quarter’s end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CAH over the last 23 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pzena Investment Management held the most valuable stake in Cardinal Health, Inc. (NYSE:CAH), which was worth $180.8 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $174.9 million worth of shares. AQR Capital Management, Citadel Investment Group, and Ariel Investments 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 5.03% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, designating 3.39 percent of its 13F equity portfolio to CAH.
Due to the fact that Cardinal Health, Inc. (NYSE:CAH) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of money managers who were dropping their full holdings in the first quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $19.8 million in stock, and Krishen Sud’s Sivik Global Healthcare was right behind this move, as the fund sold off about $5.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 10 funds in the first quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cardinal Health, Inc. (NYSE:CAH) but similarly valued. We will take a look at Huazhu Group Limited (NASDAQ:HTHT), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Imperial Oil Limited (NYSE:IMO), Broadridge Financial Solutions, Inc. (NYSE:BR), Seagate Technology plc (NASDAQ:STX), CMS Energy Corporation (NYSE:CMS), and Waters Corporation (NYSE:WAT). All of these stocks’ market caps are similar to CAH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTHT | 27 | 687842 | 4 |
| JBHT | 22 | 339245 | -4 |
| IMO | 13 | 65541 | 5 |
| BR | 22 | 233035 | -3 |
| STX | 27 | 1970595 | -3 |
| CMS | 28 | 955427 | 4 |
| WAT | 34 | 2331723 | 4 |
| Average | 24.7 | 940487 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $940 million. That figure was $968 million in CAH’s case. Waters Corporation (NYSE:WAT) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Cardinal Health, Inc. (NYSE:CAH) is more popular among hedge funds. Our overall hedge fund sentiment score for CAH is 68.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Unfortunately CAH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CAH were disappointed as the stock returned -5.7% since the end of the first quarter (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
