In this article we will check out the progression of hedge fund sentiment towards Quest Diagnostics Incorporated (NYSE:DGX) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Quest Diagnostics Incorporated (NYSE:DGX) shareholders have witnessed an increase in hedge fund interest lately. Quest Diagnostics Incorporated (NYSE:DGX) was in 45 hedge funds’ portfolios at the end of December. The all time high for this statistic is 46. There were 42 hedge funds in our database with DGX positions at the end of the third quarter. Our calculations also showed that DGX isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
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Do Hedge Funds Think DGX Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DGX 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.
Among these funds, Renaissance Technologies held the most valuable stake in Quest Diagnostics Incorporated (NYSE:DGX), which was worth $74.2 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $68.6 million worth of shares. Two Sigma Advisors, Polaris Capital Management, and Millennium Management 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 Tamarack Capital Management allocated the biggest weight to Quest Diagnostics Incorporated (NYSE:DGX), around 4.13% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, designating 2.05 percent of its 13F equity portfolio to DGX.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Quest Diagnostics Incorporated (NYSE:DGX). Arrowstreet Capital had $30 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $11.6 million investment in the stock during the quarter. The following funds were also among the new DGX investors: Nicholas Bagnall’s Te Ahumairangi Investment Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Andrew Sandler’s Sandler Capital Management.
Let’s check out hedge fund activity in other stocks similar to Quest Diagnostics Incorporated (NYSE:DGX). These stocks are Nucor Corporation (NYSE:NUE), KeyCorp (NYSE:KEY), Citrix Systems, Inc. (NASDAQ:CTXS), Seagate Technology plc (NASDAQ:STX), Tiffany & Co. (NYSE:TIF), Varian Medical Systems, Inc. (NYSE:VAR), and BioMarin Pharmaceutical Inc. (NASDAQ:BMRN). This group of stocks’ market valuations resemble DGX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NUE | 29 | 138612 | 1 |
| KEY | 29 | 317740 | -4 |
| CTXS | 29 | 352466 | -2 |
| STX | 30 | 2167418 | 7 |
| TIF | 48 | 2623109 | -13 |
| VAR | 49 | 2414410 | -3 |
| BMRN | 51 | 1670835 | 7 |
| Average | 37.9 | 1383513 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.9 hedge funds with bullish positions and the average amount invested in these stocks was $1384 million. That figure was $532 million in DGX’s case. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is the most popular stock in this table. On the other hand Nucor Corporation (NYSE:NUE) is the least popular one with only 29 bullish hedge fund positions. Quest Diagnostics Incorporated (NYSE:DGX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DGX is 73.7. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately DGX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DGX were disappointed as the stock returned 11.7% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
