We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Laboratory Corp. of America Holdings (NYSE:LH) 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.
Laboratory Corp. of America Holdings (NYSE:LH) was in 53 hedge funds’ portfolios at the end of the fourth quarter of 2019. LH investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. There were 43 hedge funds in our database with LH holdings at the end of the previous quarter. Our calculations also showed that LH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Arthur B Cohen and Joseph Healey of Healthcor Management LP
Keeping this in mind we’re going to take a peek at the recent hedge fund action encompassing Laboratory Corp. of America Holdings (NYSE:LH).
How have hedgies been trading Laboratory Corp. of America Holdings (NYSE:LH)?
At Q4’s end, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LH over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Melvin Capital Management held the most valuable stake in Laboratory Corp. of America Holdings (NYSE:LH), which was worth $249.6 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $224.4 million worth of shares. Ariel Investments, Healthcor Management LP, and Wallace R. Weitz & Co. 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 Tavio Capital allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 11.02% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, earmarking 5.76 percent of its 13F equity portfolio to LH.
Now, key money managers have jumped into Laboratory Corp. of America Holdings (NYSE:LH) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most outsized position in Laboratory Corp. of America Holdings (NYSE:LH). Marshall Wace LLP had $6.5 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $2.5 million position during the quarter. The other funds with brand new LH positions are Allan Teh’s Kamunting Street Capital, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Ran Pang’s Quantamental Technologies.
Let’s now review hedge fund activity in other stocks similar to Laboratory Corp. of America Holdings (NYSE:LH). These stocks are POSCO (NYSE:PKX), Nomura Holdings, Inc. (NYSE:NMR), Invitation Homes Inc. (NYSE:INVH), and TransUnion (NYSE:TRU). This group of stocks’ market values are similar to LH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PKX | 10 | 64171 | -1 |
| NMR | 5 | 26003 | 0 |
| INVH | 33 | 1112180 | 3 |
| TRU | 37 | 931964 | -1 |
| Average | 21.25 | 533580 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $534 million. That figure was $1292 million in LH’s case. TransUnion (NYSE:TRU) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Laboratory Corp. of America Holdings (NYSE:LH) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.3% in 2020 through May 1st but still managed to beat the market by 12.9 percentage points. Hedge funds were also right about betting on LH, though not to the same extent, as the stock returned -6% in 2020 (through May 1st) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
