How Did Laboratory Corp. of America Holdings (LH) Compare Against Top Hedge Fund Stocks in 2019?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Laboratory Corp. of America Holdings (NYSE:LH) and see how the stock performed in comparison to hedge funds’ consensus picks.

Is Laboratory Corp. of America Holdings (NYSE:LH) going to take off soon? Investors who are in the know are taking a bullish view. The number of bullish hedge fund positions went up by 2 in recent months. Our calculations also showed that LH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). LH was in 40 hedge funds’ portfolios at the end of the third quarter of 2019. There were 38 hedge funds in our database with LH holdings at the end of the previous quarter.

At the moment there are dozens of formulas stock market investors use to value their stock investments. A pair of the most useful formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top money managers can trounce their index-focused peers by a significant margin (see the details here).

Gabriel Plotkin Melvin Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s go over the latest hedge fund action encompassing Laboratory Corp. of America Holdings (NYSE:LH).

What have hedge funds been doing with Laboratory Corp. of America Holdings (NYSE:LH)?

At Q3’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in LH over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is LH A Good Stock To Buy?

More specifically, Melvin Capital Management was the largest shareholder of Laboratory Corp. of America Holdings (NYSE:LH), with a stake worth $339.4 million reported as of the end of September. Trailing Melvin Capital Management was Iridian Asset Management, which amassed a stake valued at $218.4 million. Ariel Investments, Wallace R. Weitz & Co., and Citadel Investment 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 Tavio Capital allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 17.4% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, setting aside 4.45 percent of its 13F equity portfolio to LH.

Consequently, some big names have been driving this bullishness. Healthcor Management, managed by Arthur B Cohen and Joseph Healey, established the largest position in Laboratory Corp. of America Holdings (NYSE:LH). Healthcor Management had $79.5 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $2.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Kharitonov and Jon David McAuliffe’s Voleon Capital and Lee Ainslie’s Maverick Capital.

Let’s check out hedge fund activity in other stocks similar to Laboratory Corp. of America Holdings (NYSE:LH). These stocks are Nasdaq, Inc. (NASDAQ:NDAQ), Markel Corporation (NYSE:MKL), First Republic Bank (NYSE:FRC), and W.W. Grainger, Inc. (NYSE:GWW). This group of stocks’ market values are closest to LH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NDAQ 21 134209 1
MKL 28 1394617 3
FRC 19 815413 -3
GWW 22 526223 1
Average 22.5 717616 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $718 million. That figure was $1435 million in LH’s case. Markel Corporation (NYSE:MKL) is the most popular stock in this table. On the other hand First Republic Bank (NYSE:FRC) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Laboratory Corp. of America Holdings (NYSE:LH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on LH, though not to the same extent, as the stock returned 33.8% during the same period and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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