Is McKesson Corporation (MCK) A Good Stock To Buy?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards McKesson Corporation (NYSE:MCK) changed recently.

Is MCK a good stock to buy? Hedge fund interest in McKesson Corporation (NYSE:MCK) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MCK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Old Dominion Freight Line, Inc. (NASDAQ:ODFL), ViacomCBS Inc. (NASDAQ:VIAC), and Occidental Petroleum Corporation (NYSE:OXY) to gather more data points.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Larry Robbins of Glenview Capital

At Insider Monkey, we scour multiple sources to uncover 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 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. 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. Keeping this in mind let’s check out the key hedge fund action surrounding McKesson Corporation (NYSE:MCK).

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

Heading into the third quarter of 2021, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MCK over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the most valuable position in McKesson Corporation (NYSE:MCK), worth close to $609.9 million, accounting for 2.4% of its total 13F portfolio. The second most bullish fund manager is Larry Robbins of Glenview Capital, with a $283.4 million position; the fund has 4.8% of its 13F portfolio invested in the stock. Remaining peers that hold long positions consist of Israel Englander’s Millennium Management, Cliff Asness’s AQR Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position HealthInvest Partners AB allocated the biggest weight to McKesson Corporation (NYSE:MCK), around 9.42% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, earmarking 6.27 percent of its 13F equity portfolio to MCK.

Seeing as McKesson Corporation (NYSE:MCK) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that elected to cut their positions entirely heading into Q3. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest stake of the 750 funds watched by Insider Monkey, worth about $112.3 million in stock, and Bhagwan Jay Rao’s Integral Health Asset Management was right behind this move, as the fund sold off about $9.8 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as McKesson Corporation (NYSE:MCK) but similarly valued. These stocks are Old Dominion Freight Line, Inc. (NASDAQ:ODFL), ViacomCBS Inc. (NASDAQ:VIAC), Occidental Petroleum Corporation (NYSE:OXY), Equifax Inc. (NYSE:EFX), AvalonBay Communities Inc (NYSE:AVB), Arthur J. Gallagher & Co. (NYSE:AJG), and Ameriprise Financial, Inc. (NYSE:AMP). This group of stocks’ market values are similar to MCK’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 45 hedge funds with bullish positions and the average amount invested in these stocks was $1623 million. That figure was $2315 million in MCK’s case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 26 bullish hedge fund positions. McKesson Corporation (NYSE:MCK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCK is 55.3. 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 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 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on MCK as the stock returned 4.8% since the end of Q2 (through 10/1) 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.