At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards DexCom, Inc. (NASDAQ:DXCM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
DexCom, Inc. (NASDAQ:DXCM) investors should pay attention to a decrease in support from the world’s most elite money managers recently. DexCom, Inc. (NASDAQ:DXCM) was in 55 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 58. Our calculations also showed that DXCM 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s review the new hedge fund action regarding DexCom, Inc. (NASDAQ:DXCM).
How are hedge funds trading DexCom, Inc. (NASDAQ:DXCM)?
Heading into the third quarter of 2020, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DXCM over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in DexCom, Inc. (NASDAQ:DXCM) was held by Renaissance Technologies, which reported holding $479.6 million worth of stock at the end of September. It was followed by GQG Partners with a $243.3 million position. Other investors bullish on the company included Lone Pine Capital, OrbiMed Advisors, and Deerfield Management. In terms of the portfolio weights assigned to each position Aubrey Capital Management allocated the biggest weight to DexCom, Inc. (NASDAQ:DXCM), around 4.05% of its 13F portfolio. Parkman Healthcare Partners is also relatively very bullish on the stock, earmarking 3.72 percent of its 13F equity portfolio to DXCM.
Because DexCom, Inc. (NASDAQ:DXCM) has experienced declining sentiment from the smart money, we can see that there was a specific group of fund managers who sold off their full holdings last quarter. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at about $416.6 million in stock. Michael Johnston’s fund, Steelhead Partners, also dropped its stock, about $59 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as DexCom, Inc. (NASDAQ:DXCM) but similarly valued. We will take a look at Digital Realty Trust, Inc. (NYSE:DLR), Electronic Arts Inc. (NASDAQ:EA), BCE Inc. (NYSE:BCE), General Mills, Inc. (NYSE:GIS), Walgreens Boots Alliance Inc (NASDAQ:WBA), Emerson Electric Co. (NYSE:EMR), and eBay Inc (NASDAQ:EBAY). This group of stocks’ market caps are closest to DXCM’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.9 hedge funds with bullish positions and the average amount invested in these stocks was $1326 million. That figure was $1711 million in DXCM’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 10 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 overall hedge fund sentiment score for DXCM is 69.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately DXCM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DXCM were disappointed as the stock returned 4.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.