Hedge Fund Consensus Stocks vs. DexCom, Inc. (DXCM) In 2019
It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like DexCom, Inc. (NASDAQ:DXCM) and compare its performance against hedge funds' favorite stocks.
DexCom, Inc. (NASDAQ:DXCM) has experienced an increase in support from the world's most elite money managers of late. DXCM was in 33 hedge funds' portfolios at the end of September. There were 30 hedge funds in our database with DXCM holdings at the end of the previous quarter. 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 at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30602" align="alignnone" width="600"]
Philippe Laffont of Coatue Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's analyze the recent hedge fund action encompassing 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. On the other hand, there were a total of 30 hedge funds with a bullish position in DXCM a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Columbus Circle Investors held the most valuable stake in DexCom, Inc. (NASDAQ:DXCM), which was worth $74.1 million at the end of the third quarter. On the second spot was Coatue Management which amassed $67.6 million worth of shares. Partner Fund Management, OrbiMed Advisors, and Redmile Group 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 Columbus Circle Investors allocated the biggest weight to DexCom, Inc. (NASDAQ:DXCM), around 2.72% of its 13F 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, specific money managers were breaking ground themselves. Coatue Management, managed by Philippe Laffont, created the biggest 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 new positions in the stock are Jeffrey Jay and David Kroin's Great Point Partners, Gilchrist Berg's Water Street Capital, and Kamran Moghtaderi's Eversept Partners.
Let's go over 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), Westinghouse Air Brake Technologies Corp (NYSE:WAB), and Hologic, Inc. (NASDAQ:HOLX). This group of stocks' market values are similar to DXCM's market value.
[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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on DXCM as the stock returned 80.6% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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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