Is Laboratory Corp. of America (LH) Stock A Buy or Sell?

In this article you are going to find out whether hedge funds think Laboratory Corp. of America Holdings (NYSE:LH) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is LH stock a buy or sell? Laboratory Corp. of America Holdings (NYSE:LH) was in 66 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. LH has seen an increase in enthusiasm from smart money in recent months. There were 57 hedge funds in our database with LH holdings at the end of September. Our calculations also showed that LH 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).

Barry Rosenstein of JANA Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 best cheap stocks to buy now 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). Now we’re going to take a glance at the recent hedge fund action surrounding Laboratory Corp. of America Holdings (NYSE:LH).

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

At fourth quarter’s end, a total of 66 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the third quarter of 2020. By comparison, 53 hedge funds held shares or bullish call options in LH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Iridian Asset Management held the most valuable stake in Laboratory Corp. of America Holdings (NYSE:LH), which was worth $216 million at the end of the fourth quarter. On the second spot was Melvin Capital Management which amassed $176.1 million worth of shares. JANA Partners, Ariel Investments, and Eminence Capital 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 JANA Partners allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 11.18% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, setting aside 4.25 percent of its 13F equity portfolio to LH.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. JANA Partners, managed by Barry Rosenstein, created the most outsized position in Laboratory Corp. of America Holdings (NYSE:LH). JANA Partners had $165.2 million invested in the company at the end of the quarter. Nicholas Bagnall’s Te Ahumairangi Investment Management also made a $14.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Prashanth Jayaram’s Tri Locum Partners, Paul Tudor Jones’s Tudor Investment Corp, and Andrew Sandler’s Sandler Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Laboratory Corp. of America Holdings (NYSE:LH) but similarly valued. We will take a look at Vulcan Materials Company (NYSE:VMC), Fifth Third Bancorp (NASDAQ:FITB), BioNTech SE (NASDAQ:BNTX), International Paper Company (NYSE:IP), Northern Trust Corporation (NASDAQ:NTRS), Warner Music Group Corp. (NASDAQ:WMG), and Ameren Corporation (NYSE:AEE). This group of stocks’ market values are similar to LH’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.6 hedge funds with bullish positions and the average amount invested in these stocks was $558 million. That figure was $1874 million in LH’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand BioNTech SE (NASDAQ:BNTX) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Laboratory Corp. of America Holdings (NYSE:LH) is more popular among hedge funds. Our overall hedge fund sentiment score for LH is 90. 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 returned 7% in 2021 through March 12th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on LH as the stock returned 17.3% since the end of December (through 3/12) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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