We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Laboratory Corp. of America Holdings (NYSE:LH).
Is Laboratory Corp. of America Holdings (NYSE:LH) a bargain? Hedge funds are taking an optimistic view. The number of bullish hedge fund positions went up by 10 lately. Our calculations also showed that LH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the recent hedge fund action regarding Laboratory Corp. of America Holdings (NYSE:LH).
What does smart money think about Laboratory Corp. of America Holdings (NYSE:LH)?
At the end of the fourth quarter, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from one quarter earlier. On the other hand, there were a total of 38 hedge funds with a bullish position in LH 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 Laboratory Corp. of America Holdings (NYSE:LH) was held by Melvin Capital Management, which reported holding $249.6 million worth of stock at the end of September. It was followed by Iridian Asset Management with a $224.4 million position. Other investors bullish on the company included Ariel Investments, Healthcor Management LP, and Wallace R. Weitz & Co.. In terms of the portfolio weights assigned to each position Tavio Capital allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 11.02% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, earmarking 5.76 percent of its 13F equity portfolio to LH.
Now, some big names have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in Laboratory Corp. of America Holdings (NYSE:LH). Marshall Wace LLP had $6.5 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $2.5 million position during the quarter. The other funds with brand new LH positions are Allan Teh’s Kamunting Street Capital, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Ran Pang’s Quantamental Technologies.
Let’s also examine 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 POSCO (NYSE:PKX), Nomura Holdings, Inc. (NYSE:NMR), Invitation Homes Inc. (NYSE:INVH), and TransUnion (NYSE:TRU). This group of stocks’ market values are closest to LH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PKX | 10 | 64171 | -1 |
| NMR | 5 | 26003 | 0 |
| INVH | 33 | 1112180 | 3 |
| TRU | 37 | 931964 | -1 |
| Average | 21.25 | 533580 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $534 million. That figure was $1292 million in LH’s case. TransUnion (NYSE:TRU) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) 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 calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately LH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LH were disappointed as the stock returned -27.9% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
