Were Hedge Funds Right About Piling Into Laboratory Corp. of America Holdings (LH)?

In this article we will take a look at whether hedge funds think 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.

Is Laboratory Corp. of America Holdings (NYSE:LH) a superb investment right now? Money managers were betting on the stock. The number of long hedge fund bets improved by 7 recently. Laboratory Corp. of America Holdings (NYSE:LH) was in 52 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 53. Our calculations also showed that LH 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). There were 45 hedge funds in our database with LH holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging 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 take a look at the latest hedge fund action encompassing Laboratory Corp. of America Holdings (NYSE:LH).

What does smart money think about Laboratory Corp. of America Holdings (NYSE:LH)?

At second quarter’s end, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards LH over the last 20 quarters. So, let’s examine 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 $200.8 million worth of stock at the end of September. It was followed by Melvin Capital Management with a $166.1 million position. Other investors bullish on the company included Citadel Investment Group, Ariel Investments, and Glenview Capital. In terms of the portfolio weights assigned to each position Bridger Management allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 5.05% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, designating 4.43 percent of its 13F equity portfolio to LH.

As one would reasonably expect, specific money managers were breaking ground themselves. Glenview Capital, managed by Larry Robbins, initiated the most valuable position in Laboratory Corp. of America Holdings (NYSE:LH). Glenview Capital had $121.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $95.2 million investment in the stock during the quarter. The following funds were also among the new LH investors: Aaron Cowen’s Suvretta Capital Management, Christopher James’s Partner Fund Management, and Ricky Sandler’s Eminence Capital.

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 Amcor plc (NYSE:AMCR), Pioneer Natural Resources Company (NYSE:PXD), Bilibili Inc. (NASDAQ:BILI), Hess Corporation (NYSE:HES), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Arista Networks Inc (NYSE:ANET), and Baker Hughes Company (NYSE:BKR). This group of stocks’ market caps are similar to LH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $654 million. That figure was $1580 million in LH’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 16 bullish hedge fund positions. Laboratory Corp. of America Holdings (NYSE:LH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LH is 79.4. 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 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on LH as the stock returned 24.9% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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