How do you pick the next stock to invest in? One way would be to spend days 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 next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cerner Corporation (NASDAQ:CERN) and determine whether hedge funds had an edge regarding this stock.
Is Cerner Corporation (NASDAQ:CERN) a buy here? The smart money was reducing their bets on the stock. The number of bullish hedge fund positions retreated by 3 recently. Cerner Corporation (NASDAQ:CERN) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 41. Our calculations also showed that CERN isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Today there are a large number of tools investors can use to grade publicly traded companies. A pair of the most under-the-radar tools are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the best hedge fund managers can outpace their index-focused peers by a significant margin (see the details here).
Ken Griffin of Citadel Investment Group
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind let’s analyze the key hedge fund action regarding Cerner Corporation (NASDAQ:CERN).
Hedge fund activity in Cerner Corporation (NASDAQ:CERN)
Heading into the third quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the first quarter of 2020. On the other hand, there were a total of 29 hedge funds with a bullish position in CERN 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.
Of the funds tracked by Insider Monkey, Generation Investment Management, managed by David Blood and Al Gore, holds the largest position in Cerner Corporation (NASDAQ:CERN). Generation Investment Management has a $314.8 million position in the stock, comprising 1.8% of its 13F portfolio. The second most bullish fund manager is Starboard Value LP, managed by Jeffrey Smith, which holds a $181.1 million position; the fund has 6.5% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Greg Poole’s Echo Street Capital Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Starboard Value LP allocated the biggest weight to Cerner Corporation (NASDAQ:CERN), around 6.45% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, setting aside 5.34 percent of its 13F equity portfolio to CERN.
Seeing as Cerner Corporation (NASDAQ:CERN) has faced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedgies who sold off their entire stakes in the second quarter. It’s worth mentioning that Michael Blitzer’s Kingstown Capital Management said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth close to $40.9 million in stock, and Joseph Edelman’s Perceptive Advisors was right behind this move, as the fund said goodbye to about $6.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 3 funds in the second quarter.
Let’s check out hedge fund activity in other stocks similar to Cerner Corporation (NASDAQ:CERN). These stocks are Fiat Chrysler Automobiles NV (NYSE:FCAU), DTE Energy Company (NYSE:DTE), New Oriental Education & Technology Group Inc. (NYSE:EDU), Canadian Natural Resources Limited (NYSE:CNQ), AMETEK, Inc. (NYSE:AME), AmerisourceBergen Corporation (NYSE:ABC), and Carvana Co. (NYSE:CVNA). All of these stocks’ market caps are similar to CERN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FCAU | 20 | 365898 | -5 |
| DTE | 24 | 384220 | -5 |
| EDU | 39 | 1378683 | -3 |
| CNQ | 28 | 556305 | 2 |
| AME | 40 | 952884 | 7 |
| ABC | 40 | 646674 | -1 |
| CVNA | 57 | 3587877 | 5 |
| Average | 35.4 | 1124649 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $1125 million. That figure was $875 million in CERN’s case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Fiat Chrysler Automobiles NV (NYSE:FCAU) is the least popular one with only 20 bullish hedge fund positions. Cerner Corporation (NASDAQ:CERN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CERN is 54.1. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately CERN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CERN were disappointed as the stock returned 7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Cerner Corp (NASDAQ:CERN)
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Disclosure: None. This article was originally published at Insider Monkey.
