In this article we will take a look at whether hedge funds think Quest Diagnostics Incorporated (NYSE:DGX) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is DGX a good stock to buy now? Quest Diagnostics Incorporated (NYSE:DGX) was in 42 hedge funds’ portfolios at the end of September. The all time high for this statistic is 46. DGX shareholders have witnessed a decrease in support from the world’s most elite money managers lately. There were 46 hedge funds in our database with DGX positions at the end of the second quarter. Our calculations also showed that DGX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Now we’re going to take a look at the recent hedge fund action regarding Quest Diagnostics Incorporated (NYSE:DGX).
Do Hedge Funds Think DGX Is A Good Stock To Buy Now?
At the end of September, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DGX over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the biggest position in Quest Diagnostics Incorporated (NYSE:DGX). Two Sigma Advisors has a $54.9 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $50 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism consist of Bernard Horn’s Polaris Capital Management, Cliff Asness’s AQR Capital Management and Louis Bacon’s Moore Global Investments. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to Quest Diagnostics Incorporated (NYSE:DGX), around 3.53% of its 13F portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, earmarking 2.46 percent of its 13F equity portfolio to DGX.
Because Quest Diagnostics Incorporated (NYSE:DGX) has experienced bearish sentiment from the smart money, it’s easy to see that there is a sect of fund managers that slashed their full holdings last quarter. Interestingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital dropped the largest stake of the 750 funds followed by Insider Monkey, valued at about $52.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $43.8 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Quest Diagnostics Incorporated (NYSE:DGX). We will take a look at Slack Technologies Inc (NYSE:WORK), EXACT Sciences Corporation (NASDAQ:EXAS), Bio-Rad Laboratories, Inc. (NYSE:BIO), Synchrony Financial (NYSE:SYF), XPeng Inc. (NYSE:XPEV), DISH Network Corp. (NASDAQ:DISH), and Broadridge Financial Solutions, Inc. (NYSE:BR). This group of stocks’ market valuations match DGX’s market valuation.
|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 38.1 hedge funds with bullish positions and the average amount invested in these stocks was $923 million. That figure was $412 million in DGX’s case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand Slack Technologies Inc (NYSE:WORK) is the least popular one with only 20 bullish hedge fund positions. Quest Diagnostics Incorporated (NYSE:DGX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DGX is 55.9. 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately DGX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DGX were disappointed as the stock returned 8.9% since the end of September (through 12/8) 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.