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At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Guardant Health, Inc. (NASDAQ:GH) makes for a good investment right now.
Is Guardant Health, Inc. (NASDAQ:GH) the right pick for your portfolio? Money managers were taking a pessimistic view. The number of long hedge fund bets shrunk by 11 lately. Guardant Health, Inc. (NASDAQ:GH) was in 41 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 52. Our calculations also showed that GH isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 52 hedge funds in our database with GH holdings at the end of December.
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 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 115 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.
Kamran Moghtaderi of Eversept Partners
At Insider Monkey we leave no stone unturned when looking for 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, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 homepage. With all of this in mind let's analyze the new hedge fund action surrounding Guardant Health, Inc. (NASDAQ:GH).
Do Hedge Funds Think GH Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards GH over the last 23 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Viking Global held the most valuable stake in Guardant Health, Inc. (NASDAQ:GH), which was worth $445.5 million at the end of the fourth quarter. On the second spot was Coatue Management which amassed $308.1 million worth of shares. OrbiMed Advisors, ARK Investment Management, and Polar Capital 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 Rhenman & Partners Asset Management allocated the biggest weight to Guardant Health, Inc. (NASDAQ:GH), around 2.39% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, setting aside 1.94 percent of its 13F equity portfolio to GH.
Seeing as Guardant Health, Inc. (NASDAQ:GH) has experienced declining sentiment from the smart money, logic holds that there lies a certain "tier" of funds that slashed their full holdings in the first quarter. It's worth mentioning that Ricky Sandler's Eminence Capital said goodbye to the largest stake of the "upper crust" of funds followed by Insider Monkey, worth about $26.4 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $24.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 11 funds in the first quarter.
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 American Airlines Group Inc (NASDAQ:AAL), Teledyne Technologies Incorporated (NYSE:TDY), GoodRx Holdings, Inc. (NASDAQ:GDRX), Avery Dennison Corporation (NYSE:AVY), Campbell Soup Company (NYSE:CPB), PagSeguro Digital Ltd. (NYSE:PAGS), and Cenovus Energy Inc (NYSE:CVE). This group of stocks' market values are closest to GH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AAL,32,561701,-5 TDY,31,827471,3 GDRX,24,488114,-8 AVY,20,300350,-3 CPB,28,345398,-1 PAGS,33,1804603,8 CVE,23,379693,0 Average,27.3,672476,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $672 million. That figure was $1747 million in GH's case. PagSeguro Digital Ltd. (NYSE:PAGS) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 20 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 67.7. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Unfortunately GH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on GH were disappointed as the stock returned -21.3% since the end of the first quarter (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.