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Laboratory Corp. of America Holdings (LH): Are Hedge Funds Right About This Stock?

In this article we will check out the progression of hedge fund sentiment towards Laboratory Corp. of America Holdings (NYSE:LH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Laboratory Corp. of America Holdings (NYSE:LH) shareholders have witnessed a decrease in hedge fund interest of late. LH was in 45 hedge funds’ portfolios at the end of March. There were 53 hedge funds in our database with LH positions at the end of the previous quarter. Our calculations also showed that LH isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 44 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gabriel Plotkin Melvin Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing Laboratory Corp. of America Holdings (NYSE:LH).

Hedge fund activity in Laboratory Corp. of America Holdings (NYSE:LH)

At Q1’s end, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in LH a year ago. So, let’s check out 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?

According to Insider Monkey’s hedge fund database, Gabriel Plotkin’s Melvin Capital Management has the largest position in Laboratory Corp. of America Holdings (NYSE:LH), worth close to $324.9 million, accounting for 2.6% of its total 13F portfolio. Coming in second is David Cohen and Harold Levy of Iridian Asset Management, with a $177.9 million position; the fund has 4.3% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain Arthur B Cohen and Joseph Healey’s Healthcor Management LP, John W. Rogers’s Ariel Investments and Wallace Weitz’s Wallace R. Weitz & Co.. In terms of the portfolio weights assigned to each position Healthcor Management LP allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 5.83% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, setting aside 5.32 percent of its 13F equity portfolio to LH.

Because Laboratory Corp. of America Holdings (NYSE:LH) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few money managers that elected to cut their full holdings last quarter. At the top of the heap, Brandon Haley’s Holocene Advisors said goodbye to the biggest position of all the hedgies watched by Insider Monkey, comprising about $35.2 million in stock. Amy Mulderry’s fund, Tavio Capital, also said goodbye to its stock, about $29.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 8 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Laboratory Corp. of America Holdings (NYSE:LH) but similarly valued. We will take a look at Cincinnati Financial Corporation (NASDAQ:CINF), Kansas City Southern (NYSE:KSU), International Paper Company (NYSE:IP), and Atmos Energy Corporation (NYSE:ATO). This group of stocks’ market caps match LH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CINF 31 484343 0
KSU 45 524207 5
IP 29 242007 4
ATO 21 208767 -5
Average 31.5 364831 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $365 million. That figure was $1055 million in LH’s case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand Atmos Energy Corporation (NYSE:ATO) is the least popular one with only 21 bullish hedge fund positions. Laboratory Corp. of America Holdings (NYSE:LH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but still beat the market by 15.6 percentage points. Hedge funds were also right about betting on LH as the stock returned 34.6% in Q2 (through May 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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