U.S. Markets closed

Should You Buy DexCom, Inc. (DXCM)?

Reymerlyn Martin

Is DexCom, Inc. (NASDAQ:DXCM) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

DexCom, Inc. (NASDAQ:DXCM) investors should be aware of an increase in hedge fund interest lately. Our calculations also showed that DXCM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

To most shareholders, hedge funds are seen as unimportant, old financial vehicles of years past. While there are over 8000 funds trading today, Our researchers hone in on the leaders of this club, around 750 funds. These investment experts shepherd the lion's share of the smart money's total asset base, and by keeping an eye on their inimitable picks, Insider Monkey has found various investment strategies that have historically beaten the S&P 500 index. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_341400" align="aligncenter" width="600"] Samuel Isaly of OrbiMed Advisors[/caption]

Samuel Isaly Orbimed Advisors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the latest hedge fund action regarding DexCom, Inc. (NASDAQ:DXCM).

How are hedge funds trading DexCom, Inc. (NASDAQ:DXCM)?

At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DXCM over the last 17 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

DXCM_dec2019

The largest stake in DexCom, Inc. (NASDAQ:DXCM) was held by Columbus Circle Investors, which reported holding $74.1 million worth of stock at the end of September. It was followed by Coatue Management with a $67.6 million position. Other investors bullish on the company included Partner Fund Management, OrbiMed Advisors, and Redmile Group. In terms of the portfolio weights assigned to each position Columbus Circle Investors allocated the biggest weight to DexCom, Inc. (NASDAQ:DXCM), around 2.72% of its portfolio. Pura Vida Investments is also relatively very bullish on the stock, setting aside 2.35 percent of its 13F equity portfolio to DXCM.

As one would reasonably expect, key money managers have jumped into DexCom, Inc. (NASDAQ:DXCM) headfirst. Coatue Management, managed by Philippe Laffont, assembled the largest position in DexCom, Inc. (NASDAQ:DXCM). Coatue Management had $67.6 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $37.7 million investment in the stock during the quarter. The other funds with brand new DXCM positions are Jeffrey Jay and David Kroin's Great Point Partners, Gilchrist Berg's Water Street Capital, and Kamran Moghtaderi's Eversept Partners.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as DexCom, Inc. (NASDAQ:DXCM) but similarly valued. We will take a look at Old Dominion Freight Line (NASDAQ:ODFL), NVR, Inc. (NYSE:NVR), Wabtec Corporation (NYSE:WAB), and Hologic, Inc. (NASDAQ:HOLX). This group of stocks' market valuations resemble DXCM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ODFL,22,140882,-1 NVR,36,1162559,9 WAB,32,1646949,5 HOLX,33,1018180,1 Average,30.75,992143,3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $992 million. That figure was $558 million in DXCM's case. NVR, Inc. (NYSE:NVR) is the most popular stock in this table. On the other hand Old Dominion Freight Line (NASDAQ:ODFL) is the least popular one with only 22 bullish hedge fund positions. DexCom, Inc. (NASDAQ:DXCM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on DXCM as the stock returned 52.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

Related Content