Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Cerner Corporation (NASDAQ:CERN).
Cerner Corporation (NASDAQ:CERN) was in 29 hedge funds’ portfolios at the end of March. CERN investors should pay attention to an increase in enthusiasm from smart money in recent months. There were 22 hedge funds in our database with CERN holdings at the end of the previous quarter. Our calculations also showed that cern isn’t among the 30 most popular stocks among hedge funds.
According to most shareholders, hedge funds are viewed as worthless, outdated financial tools of the past. While there are over 8000 funds in operation today, We look at the aristocrats of this club, about 750 funds. Most estimates calculate that this group of people administer the lion’s share of all hedge funds’ total asset base, and by keeping track of their top stock picks, Insider Monkey has come up with many investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Let’s check out the new hedge fund action regarding Cerner Corporation (NASDAQ:CERN).
What does the smart money think about Cerner Corporation (NASDAQ:CERN)?
At Q1’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in CERN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cerner Corporation (NASDAQ:CERN) was held by Generation Investment Management, which reported holding $189 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $181.7 million position. Other investors bullish on the company included Starboard Value LP, AQR Capital Management, and Millennium Management.
Now, key hedge funds have jumped into Cerner Corporation (NASDAQ:CERN) headfirst. Starboard Value LP, managed by Jeffrey Smith, initiated the most valuable position in Cerner Corporation (NASDAQ:CERN). Starboard Value LP had $177.1 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $32.4 million position during the quarter. The other funds with brand new CERN positions are Israel Englander’s Millennium Management, Lee Ainslie’s Maverick Capital, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cerner Corporation (NASDAQ:CERN) but similarly valued. These stocks are International Paper Company (NYSE:IP), Liberty Global plc (NASDAQ:LBTYA), Veeva Systems Inc (NYSE:VEEV), and Incyte Corporation (NASDAQ:INCY). This group of stocks’ market values are similar to CERN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IP | 29 | 250823 | -5 |
| LBTYA | 28 | 1332379 | -4 |
| VEEV | 27 | 654411 | -4 |
| INCY | 39 | 3888539 | 5 |
| Average | 30.75 | 1531538 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $1532 million. That figure was $828 million in CERN’s case. Incyte Corporation (NASDAQ:INCY) is the most popular stock in this table. On the other hand Veeva Systems Inc (NYSE:VEEV) is the least popular one with only 27 bullish hedge fund positions. Cerner Corporation (NASDAQ:CERN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on CERN as the stock returned 22.9% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
