Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Cardinal Health, Inc. (NYSE:CAH) a buy here? Hedge funds are becoming less confident. The number of long hedge fund bets fell by 3 lately. Our calculations also showed that CAH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are a large number of metrics market participants can use to value their stock investments. A couple of the most innovative metrics are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the elite money managers can outperform the broader indices by a solid margin (see the details here).
Cliff Asness of AQR Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the key hedge fund action encompassing Cardinal Health, Inc. (NYSE:CAH).
How have hedgies been trading Cardinal Health, Inc. (NYSE:CAH)?
At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CAH 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.
Among these funds, Pzena Investment Management held the most valuable stake in Cardinal Health, Inc. (NYSE:CAH), which was worth $173.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $119.7 million worth of shares. Renaissance Technologies, D E Shaw, and Arrowstreet Capital 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 Healthcare Value Capital allocated the biggest weight to Cardinal Health, Inc. (NYSE:CAH), around 2.98% of its portfolio. RR Partners is also relatively very bullish on the stock, setting aside 2.45 percent of its 13F equity portfolio to CAH.
Because Cardinal Health, Inc. (NYSE:CAH) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of money managers who sold off their full holdings heading into Q4. At the top of the heap, Israel Englander’s Millennium Management dumped the largest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $34 million in stock, and Michael Burry’s Scion Asset Management was right behind this move, as the fund dumped about $9.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Cardinal Health, Inc. (NYSE:CAH). These stocks are CNH Industrial NV (NYSE:CNHI), Grifols SA (NASDAQ:GRFS), Concho Resources Inc. (NYSE:CXO), and Enel Americas S.A. (NYSE:ENIA). All of these stocks’ market caps resemble CAH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNHI | 14 | 341649 | 0 |
| GRFS | 19 | 361224 | 3 |
| CXO | 28 | 387562 | 1 |
| ENIA | 8 | 180580 | -3 |
| Average | 17.25 | 317754 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $776 million in CAH’s case. Concho Resources Inc. (NYSE:CXO) is the most popular stock in this table. On the other hand Enel Americas S.A. (NYSE:ENIA) is the least popular one with only 8 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CAH as the stock returned 16.6% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
