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Were Hedge Funds Right About Embracing Teladoc Health, Inc (TDOC)?

Reymerlyn Martin
·5 min read

In this article you are going to find out whether hedge funds think Teladoc Health, Inc (NYSE:TDOC) 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.

Teladoc Health, Inc (NYSE:TDOC) investors should be aware of an increase in enthusiasm from smart money of late. Teladoc Health, Inc (NYSE:TDOC) was in 44 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TDOC 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MILLENNIUM MANAGEMENT
MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

Keeping this in mind let's take a look at the key hedge fund action surrounding Teladoc Health, Inc (NYSE:TDOC).

How have hedgies been trading Teladoc Health, Inc (NYSE:TDOC)?

At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TDOC over the last 20 quarters. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the most valuable position in Teladoc Health, Inc (NYSE:TDOC). Arrowstreet Capital has a $199.3 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Nancy Zevenbergen of Zevenbergen Capital Investments, with a $172.4 million position; the fund has 4.1% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish consist of Israel Englander's Millennium Management, and Donald Sussman's Paloma Partners. In terms of the portfolio weights assigned to each position Zevenbergen Capital Investments allocated the biggest weight to Teladoc Health, Inc (NYSE:TDOC), around 4.11% of its 13F portfolio. Ayrshire Capital Management is also relatively very bullish on the stock, earmarking 2.47 percent of its 13F equity portfolio to TDOC.

As industrywide interest jumped, key money managers were leading the bulls' herd. ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, initiated the most outsized position in Teladoc Health, Inc (NYSE:TDOC). ZWEIG DIMENNA PARTNERS had $21.8 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also made a $6.5 million investment in the stock during the quarter. The following funds were also among the new TDOC investors: Jinghua Yan's TwinBeech Capital, Robert B. Gillam's McKinley Capital Management, and Benjamin A. Smith's Laurion Capital Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Teladoc Health, Inc (NYSE:TDOC) but similarly valued. These stocks are Healthpeak Properties, Inc. (NYSE:PEAK), Tiffany & Co. (NYSE:TIF), Hologic, Inc. (NASDAQ:HOLX), BeiGene, Ltd. (NASDAQ:BGNE), CarMax Inc (NYSE:KMX), Broadridge Financial Solutions, Inc. (NYSE:BR), and SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). This group of stocks' market values are closest to TDOC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEAK,23,372112,-3 TIF,64,2401546,-5 HOLX,46,1546938,5 BGNE,13,3356980,2 KMX,46,1420392,9 BR,24,193920,-5 SSNC,65,2274258,8 Average,40.1,1652307,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.1 hedge funds with bullish positions and the average amount invested in these stocks was $1652 million. That figure was $812 million in TDOC's case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 13 bullish hedge fund positions. Teladoc Health, Inc (NYSE:TDOC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TDOC is 69.8. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on TDOC, though not to the same extent, as the stock returned 13.4% since Q2 (through October 23rd) and outperformed the market as well.

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

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