Was The Smart Money Right About Laboratory Corp. of America Holdings (LH)?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Laboratory Corp. of America Holdings (NYSE:LH) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Laboratory Corp. of America Holdings (NYSE:LH) has experienced an increase in activity from the world’s largest hedge funds lately. Laboratory Corp. of America Holdings (NYSE:LH) was in 58 hedge funds’ portfolios at the end of September. The all time high for this statistic is 66. Our calculations also showed that LH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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Ricky Sandler of Eminence Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla 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. With all of this in mind we’re going to go over the recent hedge fund action surrounding Laboratory Corp. of America Holdings (NYSE:LH).

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

At third quarter’s end, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LH over the last 25 quarters. So, let’s review 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?

Of the funds tracked by Insider Monkey, Melvin Capital Management, managed by Gabriel Plotkin, holds the number one position in Laboratory Corp. of America Holdings (NYSE:LH). Melvin Capital Management has a $534.7 million position in the stock, comprising 2.7% of its 13F portfolio. On Melvin Capital Management’s heels is Millennium Management, managed by Israel Englander, which holds a $274.3 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions encompass Andreas Halvorsen’s Viking Global, John W. Rogers’s Ariel Investments and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position JANA Partners allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 8.68% of its 13F portfolio. Wallace R. Weitz & Co. is also relatively very bullish on the stock, designating 4.25 percent of its 13F equity portfolio to LH.

As industrywide interest jumped, some big names have been driving this bullishness. Eminence Capital, managed by Ricky Sandler, initiated the largest position in Laboratory Corp. of America Holdings (NYSE:LH). Eminence Capital had $100.2 million invested in the company at the end of the quarter. Farallon Capital also initiated a $100.2 million position during the quarter. The other funds with brand new LH positions are Kamran Moghtaderi’s Eversept Partners, Paul Tudor Jones’s Tudor Investment Corp, and Qing Li’s Sciencast Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Laboratory Corp. of America Holdings (NYSE:LH) but similarly valued. These stocks are UiPath Inc. (NYSE:PATH), American Apparel Inc. (NYSE:APP), Weyerhaeuser Co. (NYSE:WY), Telefonica S.A. (NYSE:TEF), Wayfair Inc (NYSE:W), Carnival Corporation & plc (NYSE:CUK), and Arista Networks Inc (NYSE:ANET). This group of stocks’ market valuations are similar to LH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PATH 27 3629284 27
APP 24 1115983 24
WY 28 211817 -11
TEF 5 12431 1
W 31 3246491 -4
CUK 9 239633 -1
ANET 32 487538 -3
Average 22.3 1277597 4.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $1278 million. That figure was $2706 million in LH’s case. Arista Networks Inc (NYSE:ANET) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Laboratory Corp. of America Holdings (NYSE:LH) is more popular among hedge funds. Our overall hedge fund sentiment score for LH is 86.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, LH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LH were disappointed as the stock returned -3.6% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

Follow Labcorp Holdings Inc. (NYSE:LH)

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