Is CVS Stock A Buy or Sell?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards CVS Health Corporation (NYSE:CVS).

Is CVS stock a buy or sell? The best stock pickers were taking a bearish view. The number of bullish hedge fund bets retreated by 5 in recent months. CVS Health Corporation (NYSE:CVS) was in 56 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 77. Our calculations also showed that CVS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 61 hedge funds in our database with CVS holdings at the end of September.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article). Keeping this in mind we’re going to take a glance at the latest hedge fund action encompassing CVS Health Corporation (NYSE:CVS).

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

At fourth quarter’s end, a total of 56 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CVS over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, AQR Capital Management was the largest shareholder of CVS Health Corporation (NYSE:CVS), with a stake worth $127.6 million reported as of the end of December. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $118.7 million. Adage Capital Management, Pzena Investment Management, and Bridgewater Associates 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 Bourgeon Capital allocated the biggest weight to CVS Health Corporation (NYSE:CVS), around 3.16% of its 13F portfolio. Rhenman & Partners Asset Management is also relatively very bullish on the stock, dishing out 2.34 percent of its 13F equity portfolio to CVS.

Judging by the fact that CVS Health Corporation (NYSE:CVS) has experienced falling interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies that elected to cut their positions entirely heading into Q1. At the top of the heap, Renaissance Technologies sold off the largest investment of the 750 funds followed by Insider Monkey, comprising close to $106.2 million in stock. Steven Boyd’s fund, Armistice Capital, also said goodbye to its stock, about $29.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q1.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as CVS Health Corporation (NYSE:CVS) but similarly valued. We will take a look at Target Corporation (NYSE:TGT), Fidelity National Information Services Inc. (NYSE:FIS), Airbnb, Inc. (NASDAQ:ABNB), British American Tobacco plc (NYSE:BTI), Vale SA (NYSE:VALE), Deere & Company (NYSE:DE), and Micron Technology, Inc. (NASDAQ:MU). This group of stocks’ market caps match CVS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGT 78 4065099 21
FIS 88 9181248 0
ABNB 68 1610985 68
BTI 10 832550 3
VALE 35 2909481 0
DE 54 1804359 12
MU 100 8144429 21
Average 61.9 4078307 17.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.9 hedge funds with bullish positions and the average amount invested in these stocks was $4078 million. That figure was $961 million in CVS’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 10 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. Our overall hedge fund sentiment score for CVS is 47.4. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. A small number of hedge funds were also right about betting on CVS as the stock returned 7.9% since the end of the fourth quarter (through 3/19) and outperformed the market by an even larger margin.

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