In this article we will check out the progression of hedge fund sentiment towards McKesson Corporation (NYSE:MCK) 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 McKesson Corporation (NYSE:MCK) a splendid investment today? Money managers were becoming less hopeful. The number of bullish hedge fund bets went down by 2 in recent months. McKesson Corporation (NYSE:MCK) was in 61 hedge funds’ portfolios at the end of June. The all time high for this statistics is 68. Our calculations also showed that MCK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are plenty of methods stock traders use to assess their holdings. A couple of the most under-the-radar methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can outpace the market by a superb amount (see the details here).
Seth Klarman of Baupost Group
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. With all of this in mind let’s view the recent hedge fund action regarding McKesson Corporation (NYSE:MCK).
What have hedge funds been doing with McKesson Corporation (NYSE:MCK)?
At Q2’s end, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in MCK over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the largest position in McKesson Corporation (NYSE:MCK). Pzena Investment Management has a $459.7 million position in the stock, comprising 3% of its 13F portfolio. Sitting at the No. 2 spot is Baupost Group, led by Seth Klarman, holding a $256.1 million position; 3.2% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions encompass Cliff Asness’s AQR Capital Management, Larry Robbins’s Glenview Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Tavio Capital allocated the biggest weight to McKesson Corporation (NYSE:MCK), around 20.25% of its 13F portfolio. Glenview Capital is also relatively very bullish on the stock, earmarking 5.15 percent of its 13F equity portfolio to MCK.
Because McKesson Corporation (NYSE:MCK) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers that elected to cut their full holdings in the second quarter. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $40.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $19.6 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds in the second quarter.
Let’s check out hedge fund activity in other stocks similar to McKesson Corporation (NYSE:MCK). These stocks are Public Service Enterprise Group Incorporated (NYSE:PEG), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Credit Suisse Group AG (NYSE:CS), Nokia Corporation (NYSE:NOK), Zimmer Biomet Holdings Inc (NYSE:ZBH), Rockwell Automation Inc. (NYSE:ROK), and Waste Connections, Inc. (NYSE:WCN). This group of stocks’ market caps match MCK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEG | 31 | 649382 | -3 |
| ALXN | 57 | 3577628 | 1 |
| CS | 14 | 134420 | 3 |
| NOK | 26 | 218711 | 3 |
| ZBH | 62 | 752893 | 11 |
| ROK | 50 | 546946 | 13 |
| WCN | 39 | 720610 | 6 |
| Average | 39.9 | 942941 | 4.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.9 hedge funds with bullish positions and the average amount invested in these stocks was $943 million. That figure was $1959 million in MCK’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 14 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 78.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately MCK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MCK were disappointed as the stock returned 2.4% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
