2019 Review: Top Hedge Fund Stocks vs. Guardant Health, Inc. (GH)

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Guardant Health, Inc. (NASDAQ:GH) a safe investment right now? Hedge funds are getting more optimistic. The number of bullish hedge fund positions improved by 5 recently. Our calculations also showed that GH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let’s analyze the recent hedge fund action encompassing Guardant Health, Inc. (NASDAQ:GH).

How have hedgies been trading Guardant Health, Inc. (NASDAQ:GH)?

At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the second quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in GH a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Andreas Halvorsen’s Viking Global has the biggest position in Guardant Health, Inc. (NASDAQ:GH), worth close to $183.5 million, amounting to 1% of its total 13F portfolio. The second largest stake is held by Coatue Management, led by Philippe Laffont, holding a $50.6 million position; 0.4% of its 13F portfolio is allocated to the company. Other peers that hold long positions consist of Steve Cohen’s Point72 Asset Management, James Crichton’s Hitchwood Capital Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Prosight Capital allocated the biggest weight to Guardant Health, Inc. (NASDAQ:GH), around 1.48% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, designating 1.39 percent of its 13F equity portfolio to GH.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Viking Global, managed by Andreas Halvorsen, created the biggest position in Guardant Health, Inc. (NASDAQ:GH). Viking Global had $183.5 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $20.5 million position during the quarter. The other funds with brand new GH positions are Jeffrey Talpins’s Element Capital Management, James E. Flynn’s Deerfield Management, and Philip Hempleman’s Ardsley Partners.

Let’s now take a look at hedge fund activity in other stocks similar to Guardant Health, Inc. (NASDAQ:GH). We will take a look at AECOM (NYSE:ACM), Cemex SAB de CV (NYSE:CX), New York Community Bancorp, Inc. (NYSE:NYCB), and Skechers USA Inc (NYSE:SKX). This group of stocks’ market values are similar to GH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACM 26 956455 4
CX 9 59628 -2
NYCB 23 297857 4
SKX 26 520591 3
Average 21 458633 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $459 million. That figure was $410 million in GH’s case. AECOM (NYSE:ACM) is the most popular stock in this table. On the other hand Cemex SAB de CV (NYSE:CX) is the least popular one with only 9 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 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. Hedge funds were also right about betting on GH as the stock returned 107.9% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
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.