Should You Buy Cerner Corporation (CERN)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track more than 700 prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile gigantic failures like hedge funds’ recent losses in Valeant. Let’s take a closer look at what the funds we track think about Cerner Corporation (NASDAQ:CERN) in this article.

Is Cerner Corporation (NASDAQ:CERN) a buy here? Prominent investors are getting more optimistic. The number of long hedge fund positions increased by 2 in recent months. 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 Baker Hughes Incorporated (NYSE:BHI), Energy Transfer Partners LP (NYSE:ETP), and Ecopetrol S.A. (ADR) (NYSE:EC) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s analyze the recent action regarding Cerner Corporation (NASDAQ:CERN).

What does the smart money think about Cerner Corporation (NASDAQ:CERN)?

At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a rise of 9% from the second quarter of 2016. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, David Blood and Al Gore’s Generation Investment Management has the biggest position in Cerner Corporation (NASDAQ:CERN), worth close to $705.6 million, comprising 7.6% of its total 13F portfolio. The second most bullish fund manager is Jim Simons’ Renaissance Technologies, which holds a $46.2 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish encompass Jonathon Jacobson’s Highfields Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Greg Poole’s Echo Street Capital Management.

As industrywide interest jumped, key money managers have been driving this bullishness. Jim Simons’ Renaissance Technologies initiated the most outsized position in Cerner Corporation (NASDAQ:CERN). According to regulatory filings, the fund had $46.2 million invested in the company at the end of the quarter. George Hall’s Clinton Group also initiated a $7.4 million position during the quarter. The following funds were also among the new CERN investors: Ken Griffin’s Citadel Investment Group, Glenn Russell Dubin’s Highbridge Capital Management, and Benjamin A. Smith’s Laurion Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Cerner Corporation (NASDAQ:CERN). These stocks are Baker Hughes Incorporated (NYSE:BHI), Energy Transfer Partners LP (NYSE:ETP), Ecopetrol S.A. (ADR) (NYSE:EC), and Sirius XM Holdings Inc (NASDAQ:SIRI). This group of stocks’ market valuations are similar to CERN’s market valuation.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $1.14 billion. That figure was $873 million in CERN’s case. Baker Hughes Incorporated (NYSE:BHI) is the most popular stock in this table. On the other hand Ecopetrol S.A. (ADR) (NYSE:EC) is the least popular one with only 8 bullish hedge fund positions. Cerner Corporation (NASDAQ:CERN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BHI might be a better candidate to consider a long position.

Disclosure: none.