In this article we will check out the progression of hedge fund sentiment towards McKesson Corporation (NYSE:MCK) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is McKesson Corporation (NYSE:MCK) worth your attention right now? Prominent investors are taking a bullish view. The number of bullish hedge fund positions increased by 12 recently. Our calculations also showed that MCK isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the 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 new hedge fund action encompassing McKesson Corporation (NYSE:MCK).
Hedge fund activity in McKesson Corporation (NYSE:MCK)
At Q1’s end, a total of 63 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in MCK a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in McKesson Corporation (NYSE:MCK) was held by Pzena Investment Management, which reported holding $466.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $417.8 million position. Other investors bullish on the company included Baupost Group, Glenview Capital, and Suvretta Capital Management. In terms of the portfolio weights assigned to each position Tavio Capital allocated the biggest weight to McKesson Corporation (NYSE:MCK), around 23.06% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, dishing out 8.35 percent of its 13F equity portfolio to MCK.
Now, some big names have been driving this bullishness. Suvretta Capital Management, managed by Aaron Cowen, created the biggest position in McKesson Corporation (NYSE:MCK). Suvretta Capital Management had $131.7 million invested in the company at the end of the quarter. Christopher James’s Partner Fund Management also initiated a $46.5 million position during the quarter. The following funds were also among the new MCK investors: Benjamin A. Smith’s Laurion Capital Management, James E. Flynn’s Deerfield Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as McKesson Corporation (NYSE:MCK) but similarly valued. These stocks are Sirius XM Holdings Inc (NASDAQ:SIRI), Southern Copper Corporation (NYSE:SCCO), Amphenol Corporation (NYSE:APH), and Dow Inc. (NYSE:DOW). This group of stocks’ market values match MCK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SIRI | 36 | 1134756 | 5 |
| SCCO | 19 | 134406 | -1 |
| APH | 42 | 604137 | 6 |
| DOW | 38 | 375922 | 4 |
| Average | 33.75 | 562305 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $562 million. That figure was $2074 million in MCK’s case. Amphenol Corporation (NYSE:APH) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks McKesson Corporation (NYSE:MCK) is more popular among hedge funds. 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 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. Unfortunately MCK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MCK were disappointed as the stock returned 10.5% during the second quarter (through May 22nd) 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.
