Insider Monkey finished processing more than 700 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2018. What do these smart investors think about Cardinal Health, Inc. (NYSE:CAH)?
Cardinal Health, Inc. (NYSE:CAH) has seen an increase in support from the world’s most elite money managers recently. CAH was in 35 hedge funds’ portfolios at the end of December. There were 27 hedge funds in our database with CAH positions at the end of the previous quarter. Our calculations also showed that CAH isn’t among the 30 most popular stocks among hedge funds.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a gander at the recent hedge fund action encompassing Cardinal Health, Inc. (NYSE:CAH).
How have hedgies been trading Cardinal Health, Inc. (NYSE:CAH)?
At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CAH over the last 14 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Cardinal Health, Inc. (NYSE:CAH), which was worth $166.8 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $136.8 million worth of shares. Moreover, AQR Capital Management, Renaissance Technologies, and Two Sigma Advisors were also bullish on Cardinal Health, Inc. (NYSE:CAH), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Camber Capital Management, managed by Stephen DuBois, assembled the most outsized call position in Cardinal Health, Inc. (NYSE:CAH). Camber Capital Management had $44.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $11 million position during the quarter. The other funds with brand new CAH positions are Matthew Tewksbury’s Stevens Capital Management, Paul Tudor Jones’s Tudor Investment Corp, and Sander Gerber’s Hudson Bay Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cardinal Health, Inc. (NYSE:CAH) but similarly valued. These stocks are Mercadolibre Inc (NASDAQ:MELI), Restaurant Brands International Inc (NYSE:QSR), Franco-Nevada Corporation (NYSE:FNV), and Liberty Broadband Corp (NASDAQ:LBRDK). This group of stocks’ market values match CAH’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1911 million. That figure was $927 million in CAH’s case. Restaurant Brands International Inc (NYSE:QSR) is the most popular stock in this table. On the other hand Franco-Nevada Corporation (NYSE:FNV) is the least popular one with only 23 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 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. Unfortunately CAH wasn’t in this group. Hedge funds that bet on CAH were disappointed as the stock returned 12.7% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.