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Was The Smart Money Right About Piling Into Guardant Health (GH)?

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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 fourth 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 Guardant Health, Inc. (NASDAQ:GH) based on that data.

Guardant Health, Inc. (NASDAQ:GH) was in 52 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. GH has experienced an increase in hedge fund sentiment in recent months. There were 41 hedge funds in our database with GH positions at the end of the third quarter. Our calculations also showed that GH isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Glen Kacher of Light Street Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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. Keeping this in mind let's go over the new hedge fund action surrounding Guardant Health, Inc. (NASDAQ:GH).

Do Hedge Funds Think GH Is A Good Stock To Buy Now?

At fourth quarter's end, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GH over the last 22 quarters. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Viking Global was the largest shareholder of Guardant Health, Inc. (NASDAQ:GH), with a stake worth $455.6 million reported as of the end of December. Trailing Viking Global was Coatue Management, which amassed a stake valued at $144.2 million. Marshall Wace LLP, Suvretta Capital Management, and Healthcor Management LP 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 Iron Triangle Partners allocated the biggest weight to Guardant Health, Inc. (NASDAQ:GH), around 2.77% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, earmarking 2.7 percent of its 13F equity portfolio to GH.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, established the largest position in Guardant Health, Inc. (NASDAQ:GH). Senator Investment Group had $64.4 million invested in the company at the end of the quarter. Christopher James's Partner Fund Management also made a $29.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Ricky Sandler's Eminence Capital, Glen Kacher's Light Street Capital, and Renaissance Technologies.

Let's check out hedge fund activity in other stocks similar to Guardant Health, Inc. (NASDAQ:GH). We will take a look at Alliant Energy Corporation (NASDAQ:LNT), Erie Indemnity Company (NASDAQ:ERIE), Hasbro, Inc. (NASDAQ:HAS), Elastic N.V. (NYSE:ESTC), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), United Airlines Holdings Inc (NASDAQ:UAL), and Franklin Resources, Inc. (NYSE:BEN). This group of stocks' market valuations resemble GH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LNT,29,276325,-1 ERIE,7,44866,-7 HAS,36,356289,5 ESTC,49,2229419,13 CHRW,29,622398,7 UAL,52,1096410,12 BEN,33,268664,0 Average,33.6,699196,4.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.6 hedge funds with bullish positions and the average amount invested in these stocks was $699 million. That figure was $1538 million in GH's case. United Airlines Holdings Inc (NASDAQ:UAL) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 7 bullish hedge fund positions. Guardant Health, Inc. (NASDAQ:GH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GH is 90. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on GH as the stock returned 23.4% since the end of Q4 (through 4/30) 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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