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Is CVS Health Corporation (CVS) Going To Burn These Hedge Funds ?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards CVS Health  Corporation (NYSE:CVS).

Is CVS Health Corporation (NYSE:CVS) ready to rally soon? Investors who are in the know are betting on the stock. The number of long hedge fund positions advanced by 7 in recent months. Our calculations also showed that CVS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to view the latest hedge fund action encompassing CVS Health Corporation (NYSE:CVS).

How have hedgies been trading CVS Health Corporation (NYSE:CVS)?

Heading into the first quarter of 2020, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 77 hedge funds with a bullish position in CVS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of CVS Health Corporation (NYSE:CVS), with a stake worth $134.5 million reported as of the end of September. Trailing Citadel Investment Group was Adage Capital Management, which amassed a stake valued at $112.6 million. D E Shaw, Citadel Investment Group, and Millennium Management 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 CVS Health Corporation (NYSE:CVS), around 10.94% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, earmarking 4.02 percent of its 13F equity portfolio to CVS.

Now, some big names have jumped into CVS Health Corporation (NYSE:CVS) headfirst. Hudson Bay Capital Management, managed by Sander Gerber, initiated the largest position in CVS Health Corporation (NYSE:CVS). Hudson Bay Capital Management had $27.1 million invested in the company at the end of the quarter. Michael Rockefeller and Karl Kroeker’s Woodline Partners also initiated a $11.8 million position during the quarter. The following funds were also among the new CVS investors: Bhagwan Jay Rao’s Integral Health Asset Management, Bruce Kovner’s Caxton Associates LP, and Ali Motamed’s Invenomic Capital Management.

Let’s go over hedge fund activity in other stocks similar to CVS Health Corporation (NYSE:CVS). We will take a look at Altria Group Inc (NYSE:MO), U.S. Bancorp (NYSE:USB), Lowe’s Companies, Inc. (NYSE:LOW), and Booking Holdings Inc. (NASDAQ:BKNG). This group of stocks’ market valuations are similar to CVS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MO 54 1750020 1
USB 50 8686368 3
LOW 77 5412801 1
BKNG 74 5578745 -13
Average 63.75 5356984 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.75 hedge funds with bullish positions and the average amount invested in these stocks was $5357 million. That figure was $969 million in CVS’s case. Lowe’s Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand U.S. Bancorp (NYSE:USB) is the least popular one with only 50 bullish hedge fund positions. CVS Health Corporation (NYSE:CVS) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately CVS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CVS investors were disappointed as the stock returned -16.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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

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