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Here’s What Hedge Funds Think About DexCom, Inc. (DXCM)

Nina Todic

"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards DexCom, Inc. (NASDAQ:DXCM) and see how it was affected.

Is DexCom, Inc. (NASDAQ:DXCM) a first-rate stock to buy now? The smart money is buying. The number of long hedge fund positions inched up by 2 in recent months. Our calculations also showed that dxcm isn't among the 30 most popular stocks among hedge funds. DXCM was in 33 hedge funds' portfolios at the end of the first quarter of 2019. There were 31 hedge funds in our database with DXCM positions at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Arthur B Cohen and Joseph Healey, Healthcor Management LP

We're going to take a look at the key hedge fund action surrounding DexCom, Inc. (NASDAQ:DXCM).

How have hedgies been trading DexCom, Inc. (NASDAQ:DXCM)?

At Q1's end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in DXCM a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds with DXCM Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons's Renaissance Technologies has the most valuable position in DexCom, Inc. (NASDAQ:DXCM), worth close to $150.3 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Healthcor Management LP, led by Arthur B Cohen and Joseph Healey, holding a $87 million position; 3.5% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism contain Israel Englander's Millennium Management, Principal Global Investors's Columbus Circle Investors and John Overdeck and David Siegel's Two Sigma Advisors.

As one would reasonably expect, key hedge funds were leading the bulls' herd. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, established the most outsized position in DexCom, Inc. (NASDAQ:DXCM). Polar Capital had $32.2 million invested in the company at the end of the quarter. Glenn Russell Dubin's Highbridge Capital Management also made a $17.5 million investment in the stock during the quarter. The other funds with brand new DXCM positions are Nick Niell's Arrowgrass Capital Partners, Steve Cohen's Point72 Asset Management, and Andrew Sandler's Sandler Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to DexCom, Inc. (NASDAQ:DXCM). We will take a look at Jack Henry & Associates, Inc. (NASDAQ:JKHY), Hasbro, Inc. (NASDAQ:HAS), PerkinElmer, Inc. (NYSE:PKI), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO). All of these stocks' market caps resemble DXCM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JKHY,17,179416,-4 HAS,18,249772,-1 PKI,25,1117960,6 TTWO,50,1424808,-8 Average,27.5,742989,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $743 million. That figure was $804 million in DXCM's case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Jack Henry & Associates, Inc. (NASDAQ:JKHY) is the least popular one with only 17 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on DXCM, though not to the same extent, as the stock returned 0.7% during the same time frame and outperformed the market as well.

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

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