Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Quest Diagnostics Incorporated (NYSE:DGX) and compare its performance to hedge funds’ consensus picks in 2019.
Quest Diagnostics Incorporated (NYSE:DGX) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. DGX was in 33 hedge funds’ portfolios at the end of September. There were 24 hedge funds in our database with DGX positions at the end of the previous quarter. Our calculations also showed that DGX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the fresh hedge fund action surrounding Quest Diagnostics Incorporated (NYSE:DGX).
What have hedge funds been doing with Quest Diagnostics Incorporated (NYSE:DGX)?
At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DGX over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Paul Marshall and Ian Wace’s Marshall Wace has the most valuable position in Quest Diagnostics Incorporated (NYSE:DGX), worth close to $82.2 million, corresponding to 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $63.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions include John Overdeck and David Siegel’s Two Sigma Advisors, Bernard Horn’s Polaris Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to Quest Diagnostics Incorporated (NYSE:DGX), around 4.88% of its 13F portfolio. MD Sass is also relatively very bullish on the stock, setting aside 3.89 percent of its 13F equity portfolio to DGX.
Consequently, key money managers have jumped into Quest Diagnostics Incorporated (NYSE:DGX) headfirst. MD Sass, managed by Martin D. Sass, assembled the largest position in Quest Diagnostics Incorporated (NYSE:DGX). MD Sass had $16.5 million invested in the company at the end of the quarter. James Dinan’s York Capital Management also initiated a $12.7 million position during the quarter. The other funds with brand new DGX positions are Renaissance Technologies, Benjamin A. Smith’s Laurion Capital Management, and Jeffrey Talpins’s Element Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Quest Diagnostics Incorporated (NYSE:DGX). We will take a look at SK Telecom Co., Ltd. (NYSE:SKM), Pinterest, Inc. (NYSE:PINS), Xylem Inc (NYSE:XYL), and Discovery Communications Inc. (NASDAQ:DISCA). This group of stocks’ market caps match DGX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SKM | 6 | 42756 | -1 |
| PINS | 31 | 980235 | 0 |
| XYL | 19 | 524367 | 0 |
| DISCA | 26 | 418972 | 2 |
| Average | 20.5 | 491583 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $492 million. That figure was $561 million in DGX’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Quest Diagnostics Incorporated (NYSE:DGX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on DGX, though not to the same extent, as the stock returned 32.5% during the same period and outperformed the market as well.
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.
