Was The Smart Money Right About McKesson Corporation (MCK)?

In this article we will take a look at whether hedge funds think McKesson Corporation (NYSE:MCK) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Hedge fund interest in McKesson Corporation (NYSE:MCK) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MCK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare MCK to other stocks including Old Dominion Freight Line (NASDAQ:ODFL), ViacomCBS Inc. (NASDAQ:VIAC), and Occidental Petroleum Corporation (NYSE:OXY) to get a better sense of its popularity.

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 79 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.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

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. Now let’s check out the fresh hedge fund action regarding McKesson Corporation (NYSE:MCK).

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

At the end of June, a total of 51 of the hedge funds tracked by Insider Monkey were long 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 24 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in McKesson Corporation (NYSE:MCK) was held by Pzena Investment Management, which reported holding $609.9 million worth of stock at the end of June. It was followed by Glenview Capital with a $283.4 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position HealthInvest Partners AB allocated the biggest weight to McKesson Corporation (NYSE:MCK), around 9.42% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, earmarking 6.27 percent of its 13F equity portfolio to MCK.

Because McKesson Corporation (NYSE:MCK) has experienced declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of fund managers who were dropping their entire stakes last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest position of the 750 funds tracked by Insider Monkey, valued at close to $112.3 million in stock, and Bhagwan Jay Rao’s Integral Health Asset Management was right behind this move, as the fund said goodbye to about $9.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as McKesson Corporation (NYSE:MCK) but similarly valued. We will take a look at Old Dominion Freight Line (NASDAQ:ODFL), ViacomCBS Inc. (NASDAQ:VIAC), Occidental Petroleum Corporation (NYSE:OXY), Equifax Inc. (NYSE:EFX), AvalonBay Communities Inc (NYSE:AVB), Arthur J. Gallagher & Co. (NYSE:AJG), and Ameriprise Financial, Inc. (NYSE:AMP). All of these stocks’ market caps are closest to MCK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 45 hedge funds with bullish positions and the average amount invested in these stocks was $1623 million. That figure was $2315 million in MCK’s case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) 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 55.3. 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. Hedge funds were also right about betting on MCK as the stock returned 16.2% since the end of Q2 (through 11/5) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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