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Hedge Funds Never Been This Bullish On Livongo Health, Inc. (LVGO)

Abigail Fisher
·7 min read

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Livongo Health, Inc. (NASDAQ:LVGO) based on that data and determine whether they were really smart about the stock.

Is Livongo Health, Inc. (NASDAQ:LVGO) worth your attention right now? Hedge funds were in an optimistic mood. The number of bullish hedge fund bets moved up by 19 lately. Livongo Health, Inc. (NASDAQ:LVGO) was in 36 hedge funds' portfolios at the end of June. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LVGO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

David Atterbury - Whetstone Capital
David Atterbury - Whetstone Capital

David Atterbury of Whetstone Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we're going to go over the fresh hedge fund action surrounding Livongo Health, Inc. (NASDAQ:LVGO).

How are hedge funds trading Livongo Health, Inc. (NASDAQ:LVGO)?

At second quarter's end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 112% from the first quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in LVGO a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Matrix Capital Management, managed by David Goel and Paul Ferri, holds the biggest position in Livongo Health, Inc. (NASDAQ:LVGO). Matrix Capital Management has a $57.7 million position in the stock, comprising 0.9% of its 13F portfolio. Sitting at the No. 2 spot is Hitchwood Capital Management, led by James Crichton, holding a $52.6 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Israel Englander's Millennium Management, David Atterbury's Whetstone Capital Advisors and Bobby Yazdani and Babak Poushanchi's Cota Capital. In terms of the portfolio weights assigned to each position Cota Capital allocated the biggest weight to Livongo Health, Inc. (NASDAQ:LVGO), around 8.86% of its 13F portfolio. Inherent Group is also relatively very bullish on the stock, setting aside 6.39 percent of its 13F equity portfolio to LVGO.

As industrywide interest jumped, key money managers were breaking ground themselves. Hitchwood Capital Management, managed by James Crichton, created the largest position in Livongo Health, Inc. (NASDAQ:LVGO). Hitchwood Capital Management had $52.6 million invested in the company at the end of the quarter. Bobby Yazdani and Babak Poushanchi's Cota Capital also made a $20.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Driehaus's Driehaus Capital, Donald Sussman's Paloma Partners, and Jeffrey Hoffner's Engle Capital.

Let's go over hedge fund activity in other stocks similar to Livongo Health, Inc. (NASDAQ:LVGO). These stocks are Formula One Group (NASDAQ:FWONK), WestRock Company (NYSE:WRK), BorgWarner Inc. (NYSE:BWA), Vail Resorts, Inc. (NYSE:MTN), Hill-Rom Holdings, Inc. (NYSE:HRC), Vornado Realty Trust (NYSE:VNO), and Reynolds Consumer Products Inc. (NASDAQ:REYN). This group of stocks' market valuations match LVGO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FWONK,49,1402496,12 WRK,32,461872,6 BWA,35,802792,5 MTN,37,753210,0 HRC,30,944643,0 VNO,17,126380,-8 REYN,17,319911,0 Average,31,687329,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $687 million. That figure was $339 million in LVGO's case. Formula One Group (NASDAQ:FWONK) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 17 bullish hedge fund positions. Livongo Health, Inc. (NASDAQ:LVGO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LVGO is 69.7. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on LVGO as the stock returned 82.6% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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