Was The Smart Money Right About Laboratory Corp. of America Holdings (LH)?

After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of June 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Laboratory Corp. of America Holdings (NYSE:LH).

Laboratory Corp. of America Holdings (NYSE:LH) was in 53 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 66. LH has seen a decrease in activity from the world’s largest hedge funds of late. There were 54 hedge funds in our database with LH positions at the end of the first quarter. Our calculations also showed that LH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Ricky Sandler of Eminence Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining 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 go over the fresh hedge fund action regarding Laboratory Corp. of America Holdings (NYSE:LH).

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

At second quarter’s end, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from one quarter earlier. On the other hand, there were a total of 52 hedge funds with a bullish position in LH a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Melvin Capital Management was the largest shareholder of Laboratory Corp. of America Holdings (NYSE:LH), with a stake worth $537.9 million reported as of the end of June. Trailing Melvin Capital Management was Viking Global, which amassed a stake valued at $378.9 million. Iridian Asset Management, Melvin 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 JANA Partners allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 13.17% of its 13F portfolio. Scoggin is also relatively very bullish on the stock, dishing out 5.91 percent of its 13F equity portfolio to LH.

Since Laboratory Corp. of America Holdings (NYSE:LH) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds that slashed their full holdings heading into Q3. Interestingly, Ricky Sandler’s Eminence Capital dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $136.7 million in stock. Larry Robbins’s fund, Glenview Capital, also cut its stock, about $56.3 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Laboratory Corp. of America Holdings (NYSE:LH) but similarly valued. These stocks are Hess Corporation (NYSE:HES), Tyson Foods, Inc. (NYSE:TSN), Fifth Third Bancorp (NASDAQ:FITB), Alexandria Real Estate Equities Inc (NYSE:ARE), Rogers Communications Inc. (NYSE:RCI), Sirius XM Holdings Inc (NASDAQ:SIRI), and Genmab A/S (NASDAQ:GMAB). This group of stocks’ market values are closest to LH’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $479 million. That figure was $2555 million in LH’s case. Fifth Third Bancorp (NASDAQ:FITB) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Laboratory Corp. of America Holdings (NYSE:LH) is more popular among hedge funds. Our overall hedge fund sentiment score for LH is 78.1. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Unfortunately LH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LH were disappointed as the stock returned -0.4% since the end of the second quarter (through 11/5) 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 most of these stocks already outperformed the market since 2019.

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

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