Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Cardinal Health, Inc. (NYSE: CAH ) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that CAH isn't among the 30 most popular stocks among hedge funds .
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 ( see the details here ). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's analyze the new hedge fund action regarding Cardinal Health, Inc. (NYSE: CAH ).
What does the smart money think about Cardinal Health, Inc. (NYSE:CAH)?
At Q1's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in CAH a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Cardinal Health, Inc. (NYSE:CAH), which was worth $180.5 million at the end of the first quarter. On the second spot was AQR Capital Management which amassed $175.5 million worth of shares. Moreover, Pzena Investment Management, Renaissance Technologies, and Two Sigma Advisors were also bullish on Cardinal Health, Inc. (NYSE:CAH), allocating a large percentage of their portfolios to this stock.
Seeing as Cardinal Health, Inc. (NYSE:CAH) has faced declining sentiment from the aggregate hedge fund industry, we can see that there were a few funds that elected to cut their positions entirely last quarter. At the top of the heap, Seth Klarman's Baupost Group cut the largest stake of the 700 funds followed by Insider Monkey, valued at about $65.5 million in call options, and Stephen DuBois's Camber Capital Management was right behind this move, as the fund cut about $44.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 9 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Cardinal Health, Inc. (NYSE:CAH) but similarly valued. We will take a look at Fortinet Inc (NASDAQ: FTNT ), New Oriental Education & Tech Group Inc. (NYSE: EDU ), American Airlines Group Inc (NASDAQ: AAL ), and Western Midstream Partners, LP (NYSE: WES ). This group of stocks' market values resemble CAH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FTNT,34,1245315,1 EDU,28,932754,3 AAL,41,2032858,-4 WES,8,136200,1 Average,27.75,1086782,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1087 million. That figure was $850 million in CAH's case. American Airlines Group Inc (NASDAQ: AAL ) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE: WES ) is the least popular one with only 8 bullish hedge fund positions. Cardinal Health, Inc. (NYSE:CAH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CAH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CAH investors were disappointed as the stock returned -10.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey .