Should I Avoid Laboratory Corp. of America Holdings (LH)?

·6 min read

We at Insider Monkey have gone over 866 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article, we look at what those funds think of Laboratory Corp. of America Holdings (NYSE:LH) based on that data.

Laboratory Corp. of America Holdings (NYSE:LH) has experienced a decrease in hedge fund interest in recent months. Laboratory Corp. of America Holdings (NYSE:LH) was in 54 hedge funds' portfolios at the end of March. The all time high for this statistic is 66. There were 66 hedge funds in our database with LH positions at the end of the fourth quarter. Our calculations also showed that LH isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Gabriel Plotkin Melvin Capital Management
Gabriel Plotkin Melvin Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to take a gander at the fresh hedge fund action regarding Laboratory Corp. of America Holdings (NYSE:LH).

Do Hedge Funds Think LH Is A Good Stock To Buy Now?

At the end of March, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in LH over the last 23 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is LH A Good Stock To Buy?
Is LH A Good Stock To Buy?

More specifically, Melvin Capital Management was the largest shareholder of Laboratory Corp. of America Holdings (NYSE:LH), with a stake worth $382.5 million reported as of the end of March. Trailing Melvin Capital Management was JANA Partners, which amassed a stake valued at $290.6 million. Viking Global, Iridian Asset Management, and Ariel Investments 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 JANA Partners allocated the biggest weight to Laboratory Corp. of America Holdings (NYSE:LH), around 19.6% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, setting aside 5.51 percent of its 13F equity portfolio to LH.

Due to the fact that Laboratory Corp. of America Holdings (NYSE:LH) has faced falling interest from hedge fund managers, it's safe to say that there lies a certain "tier" of money managers that elected to cut their full holdings last quarter. Intriguingly, Aaron Cowen's Suvretta Capital Management dropped the biggest position of all the hedgies followed by Insider Monkey, totaling about $115.9 million in stock, and Christopher James's Partner Fund Management was right behind this move, as the fund dumped about $26.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 12 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to Laboratory Corp. of America Holdings (NYSE:LH). These stocks are Occidental Petroleum Corporation (NYSE:OXY), Deutsche Bank AG (NYSE:DB), Expedia Group Inc (NASDAQ:EXPE), Carnival Corporation & plc (NYSE:CUK), Maxim Integrated Products Inc. (NASDAQ:MXIM), DraftKings Inc. (NASDAQ:DKNG), and Arthur J. Gallagher & Co. (NYSE:AJG). This group of stocks' market values are closest to LH's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OXY,52,3418445,3 DB,16,1773587,0 EXPE,86,6157292,10 CUK,4,105412,-3 MXIM,55,3238393,1 DKNG,43,966256,-5 AJG,24,283959,0 Average,40,2277621,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $2278 million. That figure was $2476 million in LH's case. Expedia Group Inc (NASDAQ:EXPE) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) is the least popular one with only 4 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 48. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately LH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on LH were disappointed as the stock returned 1.4% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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