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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Guardant Health, Inc. (NASDAQ:GH).
Is GH a good stock to buy now? The smart money was taking an optimistic view. The number of bullish hedge fund positions improved by 5 lately. Guardant Health, Inc. (NASDAQ:GH) was in 41 hedge funds' portfolios at the end of September. The all time high for this statistic is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 36 hedge funds in our database with GH positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Andreas Halvorsen of Viking Global
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Now we're going to review the key hedge fund action surrounding Guardant Health, Inc. (NASDAQ:GH).
Do Hedge Funds Think GH Is A Good Stock To Buy Now?
At the end of September, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards GH over the last 21 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.
More specifically, Viking Global was the largest shareholder of Guardant Health, Inc. (NASDAQ:GH), with a stake worth $430.9 million reported as of the end of September. Trailing Viking Global was Coatue Management, which amassed a stake valued at $125 million. Marshall Wace LLP, Healthcor Management LP, and Suvretta Capital Management 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 Iron Triangle Partners allocated the biggest weight to Guardant Health, Inc. (NASDAQ:GH), around 4.15% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, earmarking 3.57 percent of its 13F equity portfolio to GH.
Consequently, key money managers have been driving this bullishness. Suvretta Capital Management, managed by Aaron Cowen, created the most outsized position in Guardant Health, Inc. (NASDAQ:GH). Suvretta Capital Management had $50.4 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $21.4 million position during the quarter. The other funds with brand new GH positions are OrbiMed Advisors, Phill Gross and Robert Atchinson's Adage Capital Management, and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Guardant Health, Inc. (NASDAQ:GH) but similarly valued. We will take a look at Kinross Gold Corporation (NYSE:KGC), Brookfield Property Partners LP (NYSE:BPY), Regions Financial Corporation (NYSE:RF), E*TRADE Financial Corporation (NASDAQ:ETFC), Western Digital Corporation (NASDAQ:WDC), Principal Financial Group Inc (NYSE:PFG), and Discovery Inc. (NASDAQ:DISCA). This group of stocks' market caps are closest to GH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KGC,29,799959,-1 BPY,8,18985,2 RF,23,192270,-3 ETFC,40,1159200,4 WDC,39,641329,-10 PFG,25,195305,-6 DISCA,29,241263,0 Average,27.6,464044,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $464 million. That figure was $1094 million in GH's case. E*TRADE Financial Corporation (NASDAQ:ETFC) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NYSE:BPY) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Guardant Health, Inc. (NASDAQ:GH) is more popular among hedge funds. Our overall hedge fund sentiment score for GH is 90. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on GH, though not to the same extent, as the stock returned 9.1% since the end of September (through December 14th) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.