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.
McKesson Corporation (NYSE:MCK) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 51 hedge funds’ portfolios at the end of March. Our calculations also showed that MCK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare MCK to other stocks including AutoZone, Inc. (NYSE:AZO), The Trade Desk, Inc. (NASDAQ:TTD), and Rockwell Automation Inc. (NYSE:ROK) to get a better sense of its popularity.
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 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Kamran Moghtaderi of Eversept 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, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 we’re going to take a glance at the latest hedge fund action encompassing McKesson Corporation (NYSE:MCK).
Do Hedge Funds Think MCK Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MCK over the last 23 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of McKesson Corporation (NYSE:MCK), with a stake worth $595 million reported as of the end of March. Trailing Pzena Investment Management was Glenview Capital, which amassed a stake valued at $343.4 million. AQR Capital Management, Arrowstreet Capital, and Marshall Wace LLP 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 Glenview Capital allocated the biggest weight to McKesson Corporation (NYSE:MCK), around 5.82% of its 13F portfolio. HealthInvest Partners AB is also relatively very bullish on the stock, dishing out 5.13 percent of its 13F equity portfolio to MCK.
Since McKesson Corporation (NYSE:MCK) has witnessed a decline in interest from the smart money, it’s safe to say that there was a specific group of fund managers that elected to cut their positions entirely in the first quarter. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group sold off the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $29.2 million in stock. Ricky Sandler’s fund, Eminence Capital, also sold off its stock, about $25 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to McKesson Corporation (NYSE:MCK). These stocks are AutoZone, Inc. (NYSE:AZO), The Trade Desk, Inc. (NASDAQ:TTD), Rockwell Automation Inc. (NYSE:ROK), Delta Air Lines, Inc. (NYSE:DAL), Nutrien Ltd. (NYSE:NTR), Xilinx, Inc. (NASDAQ:XLNX), and Interactive Brokers Group, Inc. (NASDAQ:IBKR). This group of stocks’ market values resemble MCK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AZO | 34 | 754312 | -10 |
| TTD | 35 | 812891 | 0 |
| ROK | 26 | 442334 | -9 |
| DAL | 50 | 1099712 | -8 |
| NTR | 33 | 895159 | 8 |
| XLNX | 57 | 3581332 | -9 |
| IBKR | 31 | 1456604 | 3 |
| Average | 38 | 1291763 | -3.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $1292 million. That figure was $2123 million in MCK’s case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand Rockwell Automation Inc. (NYSE:ROK) 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 67.8. 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. 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 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately MCK wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MCK were disappointed as the stock returned -5% since the end of March (through 6/18) 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 many of these stocks already outperformed the market since 2019.
Follow Mckesson Corp (NYSE:MCK)
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Disclosure: None. This article was originally published at Insider Monkey.
