In this article we will check out the progression of hedge fund sentiment towards CVS Health Corporation (NYSE:CVS) 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.
CVS Health Corporation (NYSE:CVS) has seen an increase in hedge fund sentiment lately. CVS was in 71 hedge funds’ portfolios at the end of the first quarter of 2020. There were 58 hedge funds in our database with CVS holdings at the end of the previous quarter. Our calculations also showed that CVS 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.
Arthur B Cohen and Joseph Healey of Healthcor Management LP
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 check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. 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 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 take a look at the latest hedge fund action regarding CVS Health Corporation (NYSE:CVS).
Hedge fund activity in CVS Health Corporation (NYSE:CVS)
At the end of the first quarter, a total of 71 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in CVS over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in CVS Health Corporation (NYSE:CVS) was held by D E Shaw, which reported holding $237.4 million worth of stock at the end of September. It was followed by Masters Capital Management with a $148.3 million position. Other investors bullish on the company included Citadel Investment Group, Adage Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to CVS Health Corporation (NYSE:CVS), around 9.33% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, designating 5.12 percent of its 13F equity portfolio to CVS.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, initiated the biggest position in CVS Health Corporation (NYSE:CVS). Healthcor Management LP had $73.2 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also made a $64.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Jeffrey Altman’s Owl Creek Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and David Rosen’s Rubric Capital Management.
Let’s now review hedge fund activity in other stocks similar to CVS Health Corporation (NYSE:CVS). We will take a look at QUALCOMM, Incorporated (NASDAQ:QCOM), Starbucks Corporation (NASDAQ:SBUX), The Toronto-Dominion Bank (NYSE:TD), and BHP Group (NYSE:BBL). This group of stocks’ market caps are closest to CVS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QCOM | 60 | 1621172 | -7 |
| SBUX | 68 | 3229437 | 2 |
| TD | 19 | 154160 | 2 |
| BBL | 21 | 802817 | -3 |
| Average | 42 | 1451897 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $1452 million. That figure was $1273 million in CVS’s case. Starbucks Corporation (NASDAQ:SBUX) is the most popular stock in this table. On the other hand The Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks CVS Health Corporation (NYSE:CVS) 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 CVS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CVS were disappointed as the stock returned 7.6% 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.
