CVS Health Corporation (CVS): Are Hedge Funds Right About This Stock?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

CVS Health Corporation (NYSE:CVS) shareholders have witnessed a decrease in hedge fund interest recently. CVS was in 55 hedge funds' portfolios at the end of the second quarter of 2019. There were 61 hedge funds in our database with CVS holdings at the end of the previous quarter. Our calculations also showed that CVS isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article).

Why do we pay any attention at all to hedge fund sentiment? 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the latest hedge fund action regarding CVS Health Corporation (NYSE:CVS).

How have hedgies been trading CVS Health Corporation (NYSE:CVS)?

At Q2's end, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVS over the last 16 quarters. So, let's examine 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, David E. Shaw's D E Shaw has the most valuable position in CVS Health Corporation (NYSE:CVS), worth close to $177.4 million, comprising 0.2% of its total 13F portfolio. The second most bullish fund manager is Ken Griffin of Citadel Investment Group, with a $131.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish consist of Israel Englander's Millennium Management, Phill Gross and Robert Atchinson's Adage Capital Management and Ken Griffin's Citadel Investment Group.

Judging by the fact that CVS Health Corporation (NYSE:CVS) has witnessed declining sentiment from the smart money, it's easy to see that there were a few money managers that elected to cut their entire stakes by the end of the second quarter. At the top of the heap, Steven Boyd's Armistice Capital said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $74.9 million in stock. Jeffrey Altman's fund, Owl Creek Asset Management, also dropped its stock, about $67.8 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 6 funds by the end of the second quarter.

Let's go over hedge fund activity in other stocks similar to CVS Health Corporation (NYSE:CVS). These stocks are Automatic Data Processing, Inc. (NASDAQ:ADP), VMware, Inc. (NYSE:VMW), Intuit Inc. (NASDAQ:INTU), and Becton, Dickinson and Company (NYSE:BDX). This group of stocks' market values match CVS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADP,43,2736833,4 VMW,34,1324960,2 INTU,46,2203004,4 BDX,40,1254476,5 Average,40.75,1879818,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $1880 million. That figure was $986 million in CVS's case. Intuit Inc. (NASDAQ:INTU) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks CVS Health Corporation (NYSE:CVS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CVS as the stock returned 16.8% during Q3 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. 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.

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