How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly-traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their stocks. They don’t always get it right, but, on average, their stock picks historically generate strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cardinal Health, Inc. (NYSE:CAH).
Cardinal Health, Inc. (NYSE:CAH) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months, with the stock in 3 fewer portfolios of funds tracked by Insider Monkey. At the end of this article we will also compare CAH to other stocks including Southwest Airlines Co. (NYSE:LUV), AFLAC Incorporated (NYSE:AFL), and Nokia Corporation (ADR) (NYSE:NOK) to get a better sense of its popularity.
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Today there are numerous formulas shareholders have at their disposal to appraise stocks. A pair of the most useful formulas are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can beat the market by a solid amount (see the details here).
With all of this in mind, let’s take a look at the recent action surrounding Cardinal Health, Inc. (NYSE:CAH).
What have hedge funds been doing with Cardinal Health, Inc. (NYSE:CAH)?
At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 7% drop from the second quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or had already accumulated large positions).
According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the most valuable position in Cardinal Health, Inc. (NYSE:CAH), worth close to $140.3 million, accounting for 0.3% of its total 13F portfolio. The second-largest stake is held by Steven Richman of East Side Capital (RR Partners), with a $117.1 million position; 5% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish consist of David Harding’s Winton Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and D E Shaw.
Due to the fact that Cardinal Health, Inc. (NYSE:CAH) has faced a declination in interest from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies that slashed their entire stakes heading into Q4. It’s worth mentioning that Roberto Mignone’s Bridger Management dumped the biggest investment of the 700 funds followed by Insider Monkey, totaling about $65.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $56.7 million worth of shares. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Cardinal Health, Inc. (NYSE:CAH). These stocks are Southwest Airlines Co. (NYSE:LUV), AFLAC Incorporated (NYSE:AFL), Nokia Corporation (ADR) (NYSE:NOK), and O’Reilly Automotive Inc (NASDAQ:ORLY). This group of stocks’ market values are similar to CAH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LUV | 54 | 2542264 | 4 |
| AFL | 28 | 768753 | 1 |
| NOK | 24 | 450622 | 1 |
| ORLY | 35 | 1516821 | 3 |
As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $1.32 billion. That figure was $796 million in CAH’s case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table. On the other hand Nokia Corporation (ADR) (NYSE:NOK) is the least popular one with only 24 bullish hedge fund positions. Cardinal Health, Inc. (NYSE:CAH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LUV might be a better candidate to consider a long position in.
