Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Cardinal Health, Inc. (NYSE:CAH).
Is CAH stock a buy or sell? Cardinal Health, Inc. (NYSE:CAH) investors should pay attention to an increase in hedge fund sentiment of late. Cardinal Health, Inc. (NYSE:CAH) was in 49 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 49. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CAH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
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, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article). Keeping this in mind let’s take a gander at the fresh hedge fund action regarding Cardinal Health, Inc. (NYSE:CAH).
Do Hedge Funds Think CAH Is A Good Stock To Buy Now?
At Q4’s end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CAH over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of Cardinal Health, Inc. (NYSE:CAH), with a stake worth $176.4 million reported as of the end of December. Trailing D E Shaw was Pzena Investment Management, which amassed a stake valued at $171.4 million. AQR Capital Management, Citadel Investment Group, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position HealthInvest Partners AB allocated the biggest weight to Cardinal Health, Inc. (NYSE:CAH), around 5.99% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, earmarking 4.51 percent of its 13F equity portfolio to CAH.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Cardinal Health, Inc. (NYSE:CAH). Point72 Asset Management had $9.1 million invested in the company at the end of the quarter. Anders Hallberg and Carl Bennet’s HealthInvest Partners AB also made a $9.1 million investment in the stock during the quarter. The other funds with brand new CAH positions are Krishen Sud’s Sivik Global Healthcare, Nicholas Bagnall’s Te Ahumairangi Investment Management, and Greg Poole’s Echo Street Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cardinal Health, Inc. (NYSE:CAH) but similarly valued. We will take a look at Albemarle Corporation (NYSE:ALB), Live Nation Entertainment, Inc. (NYSE:LYV), The AES Corporation (NYSE:AES), KB Financial Group, Inc. (NYSE:KB), Lyft, Inc. (NASDAQ:LYFT), MGM Resorts International (NYSE:MGM), and Darden Restaurants, Inc. (NYSE:DRI). All of these stocks’ market caps resemble CAH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALB | 21 | 126278 | -6 |
| LYV | 46 | 1629672 | -4 |
| AES | 38 | 900730 | 6 |
| KB | 5 | 42629 | -1 |
| LYFT | 52 | 1166503 | 20 |
| MGM | 44 | 2171039 | 3 |
| DRI | 42 | 1410846 | 1 |
| Average | 35.4 | 1063957 | 2.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $1064 million. That figure was $1142 million in CAH’s case. Lyft, Inc. (NASDAQ:LYFT) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 5 bullish hedge fund positions. Cardinal Health, Inc. (NYSE:CAH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CAH is 85.8. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on CAH as the stock returned 9.6% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
