We recently looked at Goldman Sachs’ List Of Stocks That Hedge & Mutual Funds Love & Hate: 28 Stocks On The Mutual and Hedge Funds Radar. In this piece, we will look at where Cencora (NYSE:COR) sits on the fund managers’ radar.
The surge in interest surrounding artificial intelligence has meant that the stock market in 2024 has continued to surprise. Just like most Wall Street analysts were left scratching their heads after worries of a recession proved to be unfounded, this year, analysts have continued to revise their year end targets of the flagship S&P index multiple times. Take the example of investment bank Goldman Sachs. Its latest index year end target was released in October, and as of now, the bank believes that the index will close at 6,000 points by the end of this year.
Before the October target, the bank had upped its year end estimate to 5,600 points in June. This was based on optimism for big tech stocks and the rush surrounding AI that continued to fuel them. This had added 400 points to the previous target of 5,200 points which was released in February, and this in turn had added 100 points to the previous upward revision of 5,100 over the first Goldman Sachs S&P year end target of 4,700 points.
Safe to say, the market has beaten expectations in 2024. Its recent value of 5,832 points leaves it just 2.8% shy of Goldman’s latest 2024 estimate. The index is up by 23.6% year to date, and to see just how much its returns have been driven by artificial intelligence, consider the fact that the Philadelphia Stock Exchange’s semiconductor stock index is up 27.8% year to date. AI, and particularly semiconductor stocks, continue to make their mark and the key question now is whether this performance will be sustained after the third quarter earnings season.
The Q2 season was nothing short of fireworks for some of the biggest AI names. Two firms in particular come to mind when we reminisce. The first is Wall Street’s AI darling which is known for making the best AI GPUs in the world, and the second is the firm behind Windows OS that has invested billions of dollars in the AI upstart OpenAI. Both these stocks did well in the first half of 2024 but pared back some of their gains in H2. Starting from the GPU company, its stock is up 186% year to date. However, from the peak in June which had marked 181% in YTD gains back then, the shares are up by a modest 1.84%. For the software company, the shares peaked at 26% year to date returns before the Q2 earnings season, and since the peak, they are down 10.4%.
The difference in their share price appreciation isn’t surprising even though it might appear to be so. Simply put, the reason the GPU maker has posted stronger returns is its products are the immediate need of the AI industry. On the other hand, the software company’s products are part of a later wave of AI which counts upon strong demand for AI products within the business world to enable it to turn a profit. Turning a profit is key since it has already invested billions of dollars into OpenAI. If you’re interested in learning more about the minutiae of AI investing, do check out Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks.
Shifting gears, within this dynamic stock market environment, mutual funds appear to be performing well. Research from BofA covering their performance for the first quarter shows that 64% of actively managed large cap US mutual funds beat their benchmarks. This was a sizeable jump over 38% of funds beating the benchmarks last year, with the bank speculating that a broadening of equities performance was part of the reason driving the returns. A study from The Wall Street Journal adds to this. It looks at the performance of large cap growth funds during H1 2024 and shares that the Magnificent 7 stocks drove large cap growth funds to the top of the mutual fund pyramid. The survey looked at 1,218 funds to determine that just 15% were in the red, with the average 12 month return of all the surveyed funds being 16.5%.
While on one end of the spectrum are the risk averse mutual funds, on the other, are hedge funds that chase alpha through leverage. This risk means that the funds can accumulate large losses that take years to recover from. This is the case for some of the funds, according to Goldman’s latest industry report. It shows that Tiger Global, Whale Rock, and Third Point which fell 50%+, 45%, and 21.8% in 2022 still haven’t recovered. In 2023, the three respective funds posted 28.5%, 18%, and 4.1%, while their performance through July was 10.7% and 10.9% for Tiger Global and Third Point and 18.9% through May for Whale Rock.
In fact, GS’ data shows that roughly one third of long-short funds are yet to recover their 2022 losses, as they are joined by 31% of event driven funds and 45% of macro driven funds. However, some of the top performing funds in the first half were Bridgewater Associates and Citadel, which posted 14.1% and 13.7% in returns respectively. The top performer among hedge funds appears to be AQR Capital with its long/short fund delivering 16.3% in returns.
Our Methodology
To make our list of stocks that hedge funds and mutual funds love and hate, we divided Goldman’s Hedge Fund Trend Monitor and Mutual Fundamentals report into four categories. These categories are stocks that both avoid, stocks that both love, and stocks favored by one but avoided by the other. Stocks within these categories were ranked by the number of hedge funds that had bought the shares during Q2 2024. To learn more about the number of top hedge fund investments in some of these stocks, you can check out Goldman Sachs’ Best Hedge Fund Stock Picks: Top 20 Stocks.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A person looking intently at a broker’s screen full of stock information, implying the company’s stock market expertise.
Cencora (NYSE:COR)
Number of Hedge Fund Holders In Q2 2024: 47
Category: Shorted by HFs and overweight among mutual funds
Cencora (NYSE:COR) is one of the biggest pharmacy distributors in America. Its heft is evident by the fact that the firm’s trailing twelve month revenue sits at $283 billion while it ended its latest quarter with cash and equivalents of $3.3 billion. Cencora (NYSE:COR)’s business model means that it is reliant to a large extent on some of the biggest pharmacy chains in America for its business. Its contracts expire annually, and Cencora (NYSE:COR) is also dependent on the state of the US pharmacy industry as well as new drugs entering the market and patent expiration leading to generics. As an example, Cencora (NYSE:COR)’s shares fell by 6% in May after a weight loss drug shortage meant that it was deprived of high volumes that are necessary to drive margins. Conversely, the shares jumped by 7% in July after the firm bumped its adjusted 2024 EPS guidance to a midpoint of $13.60 from an earlier $13.45 on the back of rising specialty drug and biosimiliar sales. Therein also lie the key drivers of Cencora (NYSE:COR)’s stock.
Cencora (NYSE:COR)’s management commented on the specialty and biosimilar markets during the Q3 2024 earnings call:
“I am particularly proud of our specialty distribution and services offering. For close to three decades, we have been a leader and innovator in this space. Importantly, we continue to make forward-thinking investments that position us to capitalize on addressing the complexities these products pose in handling and distribution, and connect us with downstream providers where we are positioned to equip practices with offerings that advance the strength of their business.
As specialty continues to grow across all therapeutic areas, we are able to expand and develop the partnerships we have with customers, furthering our leading market position. Our leadership in specialty remains a key tenant of our long-term growth and strategy. We make forward-thinking investments in our infrastructure and emerging technologies to position Cencora as the best partner to address our customers’ current and future needs.”
Overall COR ranks 23rd on our list of stocks that fund managers love and hate according to Goldman Sachs. While we acknowledge the potential of COR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than COR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.