Was The Smart Money Right About CVS Health (CVS)?

We at Insider Monkey have gone over 887 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of CVS Health Corporation (NYSE:CVS) based on that data.

Is CVS Health Corporation (NYSE:CVS) a buy here? Investors who are in the know were reducing their bets on the stock. The number of bullish hedge fund bets were trimmed by 5 lately. CVS Health Corporation (NYSE:CVS) was in 56 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 77. Our calculations also showed that CVS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 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.

Bernard Horn of Polaris Capital Management

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 take a peek at the recent hedge fund action encompassing CVS Health Corporation (NYSE:CVS).

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

At Q4’s end, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. By comparison, 58 hedge funds held shares or bullish call options in CVS a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the number one position in CVS Health Corporation (NYSE:CVS), worth close to $127.6 million, accounting for 0.2% of its total 13F portfolio. On AQR Capital Management’s heels is D E Shaw, managed by D. E. Shaw, which holds a $118.7 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism encompass Phill Gross and Robert Atchinson’s Adage Capital Management, Richard S. Pzena’s Pzena Investment Management and Ray Dalio’s Bridgewater Associates. In terms of the portfolio weights assigned to each position Bourgeon Capital allocated the biggest weight to CVS Health Corporation (NYSE:CVS), around 3.16% of its 13F portfolio. Rhenman & Partners Asset Management is also relatively very bullish on the stock, designating 2.34 percent of its 13F equity portfolio to CVS.

Due to the fact that CVS Health Corporation (NYSE:CVS) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few funds that elected to cut their entire stakes heading into Q1. Intriguingly, Renaissance Technologies said goodbye to the largest position of the 750 funds monitored by Insider Monkey, comprising about $106.2 million in stock. Steven Boyd’s fund, Armistice Capital, also dropped its stock, about $29.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 5 funds heading into Q1.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CVS Health Corporation (NYSE:CVS) but similarly valued. We will take a look at Target Corporation (NYSE:TGT), Fidelity National Information Services Inc. (NYSE:FIS), Airbnb, Inc. (NASDAQ:ABNB), British American Tobacco plc (NYSE:BTI), Vale SA (NYSE:VALE), Deere & Company (NYSE:DE), and Micron Technology, Inc. (NASDAQ:MU). This group of stocks’ market valuations are closest to CVS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.9 hedge funds with bullish positions and the average amount invested in these stocks was $4078 million. That figure was $961 million in CVS’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 10 bullish hedge fund positions. CVS Health Corporation (NYSE:CVS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CVS is 47.4. 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 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 by 1.6 percentage points. A small number of hedge funds were also right about betting on CVS, though not to the same extent, as the stock returned 13.3% since the end of Q4 (through April 30th) and outperformed the market.

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