CVS Caremark Corporation (CVS): Hedge Funds and Insiders Are Bearish, What Should You Do?

Is CVS Caremark Corporation (NYSE:CVS) an outstanding investment right now? The smart money is getting less optimistic. The number of bullish hedge fund positions stayed the same which is a slightly negative development in our experience

According to most stock holders, hedge funds are assumed to be unimportant, outdated investment tools of yesteryear. While there are more than 8000 funds trading at present, we at Insider Monkey look at the aristocrats of this club, around 450 funds. It is widely believed that this group controls the lion’s share of all hedge funds’ total asset base, and by monitoring their top stock picks, we have determined a few investment strategies that have historically outpaced the S&P 500 index. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Just as important, positive insider trading activity is another way to parse down the financial markets. Obviously, there are many motivations for an executive to sell shares of his or her company, but only one, very clear reason why they would buy. Plenty of academic studies have demonstrated the valuable potential of this method if you understand what to do (learn more here).

Consequently, we’re going to take a look at the latest action regarding CVS Caremark Corporation (NYSE:CVS).

What does the smart money think about CVS Caremark Corporation (NYSE:CVS)?

Heading into Q2, a total of 46 of the hedge funds we track were bullish in this stock, a change of 0% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully.

When looking at the hedgies we track, First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, holds the biggest position in CVS Caremark Corporation (NYSE:CVS). First Pacific Advisors LLC has a $402.8 million position in the stock, comprising 4.4% of its 13F portfolio. On First Pacific Advisors LLC’s heels is AQR Capital Management, managed by Cliff Asness, which held a $149.4 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other hedgies that are bullish include D. E. Shaw’s D E Shaw, Mario Gabelli’s GAMCO Investors and Phill Gross and Robert Atchinson’s Adage Capital Management.

Since CVS Caremark Corporation (NYSE:CVS) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers that elected to cut their full holdings in Q1. At the top of the heap, D. E. Shaw’s D E Shaw sold off the biggest stake of the “upper crust” of funds we track, comprising close to $10.9 million in call options, and Michael Karsch of Karsch Capital Management was right behind this move, as the fund said goodbye to about $10.8 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

How have insiders been trading CVS Caremark Corporation (NYSE:CVS)?

Insider buying is best served when the primary stock in question has seen transactions within the past 180 days. Over the latest half-year time frame, CVS Caremark Corporation (NYSE:CVS) has seen zero unique insiders buying, and 3 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to CVS Caremark Corporation (NYSE:CVS). These stocks are PharMerica Corporation (NYSE:PMC), BioScrip Inc. (NASDAQ:BIOS), Rite Aid Corporation (NYSE:RAD), GNC Holdings Inc (NYSE:GNC), and Walgreen Company (NYSE:WAG). This group of stocks are the members of the drug stores industry and their market caps are closest to CVS’s market cap.