How Did Hedge Funds’ Quest Diagnostics Incorporated (DGX) Bets Fare?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Quest Diagnostics Incorporated (NYSE:DGX) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Quest Diagnostics Incorporated (NYSE:DGX) has seen an increase in enthusiasm from smart money lately. Quest Diagnostics Incorporated (NYSE:DGX) was in 36 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 46. There were 31 hedge funds in our database with DGX holdings at the end of June. Our calculations also showed that DGX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 view the recent hedge fund action regarding Quest Diagnostics Incorporated (NYSE:DGX).

Cliff Asness of AQR Capital Management

Do Hedge Funds Think DGX Is A Good Stock To Buy Now?

At Q3’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DGX over the last 25 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in Quest Diagnostics Incorporated (NYSE:DGX) was held by Renaissance Technologies, which reported holding $140.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $119.5 million position. Other investors bullish on the company included Citadel Investment Group, Two Sigma Advisors, and D E Shaw. In terms of the portfolio weights assigned to each position Te Ahumairangi Investment Management allocated the biggest weight to Quest Diagnostics Incorporated (NYSE:DGX), around 1.68% of its 13F portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, setting aside 0.87 percent of its 13F equity portfolio to DGX.

As one would reasonably expect, key hedge funds were breaking ground themselves. Sivik Global Healthcare, managed by Krishen Sud, assembled the largest position in Quest Diagnostics Incorporated (NYSE:DGX). Sivik Global Healthcare had $3.6 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $3 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Ronald Hua’s Qtron Investments.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Quest Diagnostics Incorporated (NYSE:DGX) but similarly valued. We will take a look at SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Teleflex Incorporated (NYSE:TFX), Domino’s Pizza, Inc. (NYSE:DPZ), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Pembina Pipeline Corp (NYSE:PBA), Western Digital Corporation (NASDAQ:WDC), and Pool Corporation (NASDAQ:POOL). All of these stocks’ market caps are similar to DGX’s market cap.

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As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1238 million. That figure was $488 million in DGX’s case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 8 bullish hedge fund positions. Quest Diagnostics Incorporated (NYSE:DGX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DGX is 66. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, DGX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DGX were disappointed as the stock returned -6.3% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.