Hedge Funds Aren’t Crazy About Quest Diagnostics Incorporated (DGX) Anymore

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 866 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st. In this article we look at what those investors think of Quest Diagnostics Incorporated (NYSE:DGX).

Quest Diagnostics Incorporated (NYSE:DGX) was in 34 hedge funds’ portfolios at the end of March. The all time high for this statistic is 46. DGX shareholders have witnessed a decrease in enthusiasm from smart money recently. There were 45 hedge funds in our database with DGX positions at the end of the fourth quarter. Our calculations also showed that DGX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

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 analyze the fresh hedge fund action surrounding Quest Diagnostics Incorporated (NYSE:DGX).

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

At first quarter’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. On the other hand, there were a total of 38 hedge funds with a bullish position in DGX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’s AQR Capital Management has the number one position in Quest Diagnostics Incorporated (NYSE:DGX), worth close to $65.4 million, comprising 0.1% of its total 13F portfolio. On AQR Capital Management’s heels is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $61.4 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Bernard Horn’s Polaris Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to Quest Diagnostics Incorporated (NYSE:DGX), around 3.95% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, designating 1.57 percent of its 13F equity portfolio to DGX.

Because Quest Diagnostics Incorporated (NYSE:DGX) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of fund managers that slashed their full holdings last quarter. Interestingly, Charles Clough’s Clough Capital Partners sold off the biggest investment of all the hedgies watched by Insider Monkey, valued at about $28.9 million in stock. Larry Robbins’s fund, Glenview Capital, also dumped its stock, about $12 million worth. These moves are important to note, as aggregate hedge fund interest fell by 11 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Quest Diagnostics Incorporated (NYSE:DGX). We will take a look at Bio-Rad Laboratories, Inc. (NYSE:BIO), Celanese Corporation (NYSE:CE), Healthpeak Properties, Inc. (NYSE:PEAK), Albemarle Corporation (NYSE:ALB), Rollins, Inc. (NYSE:ROL), Raymond James Financial, Inc. (NYSE:RJF), and Ally Financial Inc (NYSE:ALLY). All of these stocks’ market caps are closest to DGX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.7 hedge funds with bullish positions and the average amount invested in these stocks was $911 million. That figure was $485 million in DGX’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Healthpeak Properties, Inc. (NYSE:PEAK) is the least popular one with only 18 bullish hedge fund positions. Quest Diagnostics Incorporated (NYSE:DGX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DGX is 40.4. 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 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 surpassed the market again by 4.8 percentage points. Unfortunately DGX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DGX investors were disappointed as the stock returned 1.5% since the end of March (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 in 2021.

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

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