We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Tandem Diabetes Care Inc (NASDAQ:TNDM) is a good investment 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.
Is Tandem Diabetes Care Inc (NASDAQ:TNDM) a buy here? Money managers are becoming hopeful. The number of bullish hedge fund bets improved by 2 lately. Our calculations also showed that TNDM isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). TNDM was in 39 hedge funds' portfolios at the end of December. There were 37 hedge funds in our database with TNDM holdings at the end of the previous quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_364894" align="aligncenter" width="400"] James E. Flynn of Deerfield Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to go over the latest hedge fund action encompassing Tandem Diabetes Care Inc (NASDAQ:TNDM).
How are hedge funds trading Tandem Diabetes Care Inc (NASDAQ:TNDM)?
Heading into the first quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the third quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in TNDM a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, James E. Flynn's Deerfield Management has the biggest position in Tandem Diabetes Care Inc (NASDAQ:TNDM), worth close to $81.2 million, comprising 2.6% of its total 13F portfolio. The second most bullish fund manager is Jeremy Green of Redmile Group, with a $69.9 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism comprise Samuel Isaly's OrbiMed Advisors, Renaissance Technologies and Principal Global Investors's Columbus Circle Investors. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Tandem Diabetes Care Inc (NASDAQ:TNDM), around 3.91% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, earmarking 3.04 percent of its 13F equity portfolio to TNDM.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Parkman Healthcare Partners, managed by Greg Martinez, created the most outsized position in Tandem Diabetes Care Inc (NASDAQ:TNDM). Parkman Healthcare Partners had $8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $5.5 million position during the quarter. The other funds with new positions in the stock are John W. Rende's Copernicus Capital Management, Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, and Vishal Saluja and Pham Quang's Endurant Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tandem Diabetes Care Inc (NASDAQ:TNDM) but similarly valued. These stocks are Associated Banc Corp (NYSE:ASB), Qurate Retail, Inc. (NASDAQ:QRTEA), Liberty Global PLC LiLAC Class A (NASDAQ:LILA), and Compania Cervecerias Unidas S.A. (NYSE:CCU). This group of stocks' market valuations are closest to TNDM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASB,24,191911,1 QRTEA,39,710121,4 LILA,11,170779,-3 CCU,8,40468,-1 Average,20.5,278320,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $518 million in TNDM's case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 8 bullish hedge fund positions. Tandem Diabetes Care Inc (NASDAQ:TNDM) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on TNDM as the stock returned -3.5% during the first quarter (through March 25th) 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.