Was The Smart Money Right About Piling Into Labcorp (LH)?

In this article we will check out the progression of hedge fund sentiment towards Laboratory Corp. of America Holdings (NYSE:LH) 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.

Is Laboratory Corp. of America Holdings (NYSE:LH) a good investment today? Prominent investors were taking a bullish view. The number of long hedge fund bets increased by 9 recently. Laboratory Corp. of America Holdings (NYSE:LH) was in 66 hedge funds’ portfolios at the end of December. The all time high for this statistic is 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LH 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. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Barry Rosenstein of JANA Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 website. With all of this in mind we’re going to take a peek at the recent hedge fund action surrounding Laboratory Corp. of America Holdings (NYSE:LH).

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

At fourth quarter’s end, a total of 66 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the previous quarter. By comparison, 53 hedge funds held shares or bullish call options in LH a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Laboratory Corp. of America Holdings (NYSE:LH) was held by Iridian Asset Management, which reported holding $216 million worth of stock at the end of December. It was followed by Melvin Capital Management with a $176.1 million position. Other investors bullish on the company included JANA Partners, Ariel Investments, and Eminence Capital. 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 11.18% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, dishing out 4.25 percent of its 13F equity portfolio to LH.

Now, specific money managers have jumped into Laboratory Corp. of America Holdings (NYSE:LH) headfirst. JANA Partners, managed by Barry Rosenstein, initiated the biggest position in Laboratory Corp. of America Holdings (NYSE:LH). JANA Partners had $165.2 million invested in the company at the end of the quarter. Nicholas Bagnall’s Te Ahumairangi Investment Management also initiated a $14.4 million position during the quarter. The other funds with new positions in the stock are Prashanth Jayaram’s Tri Locum Partners, Paul Tudor Jones’s Tudor Investment Corp, and Andrew Sandler’s Sandler Capital Management.

Let’s now take a look at 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 Vulcan Materials Company (NYSE:VMC), Fifth Third Bancorp (NASDAQ:FITB), BioNTech SE (NASDAQ:BNTX), International Paper Company (NYSE:IP), Northern Trust Corporation (NASDAQ:NTRS), Warner Music Group Corp. (NASDAQ:WMG), and Ameren Corporation (NYSE:AEE). This group of stocks’ market caps resemble LH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.6 hedge funds with bullish positions and the average amount invested in these stocks was $558 million. That figure was $1874 million in LH’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand BioNTech SE (NASDAQ:BNTX) is the least popular one with only 17 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 90. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on LH as the stock returned 28% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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