Did Hedge Funds Make The Right Call On Livongo Health, Inc. (LVGO) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Livongo Health, Inc. (NASDAQ:LVGO) and determine whether hedge funds skillfully traded this stock.

Is Livongo Health, Inc. (NASDAQ:LVGO) undervalued? Investors who are in the know were getting less bullish. The number of long hedge fund bets were trimmed by 1 recently. Our calculations also showed that LVGO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). LVGO was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with LVGO holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Atterbury - Whetstone Capital

David Atterbury of Whetstone Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. 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. Now we’re going to take a look at the recent hedge fund action regarding Livongo Health, Inc. (NASDAQ:LVGO).

What have hedge funds been doing with Livongo Health, Inc. (NASDAQ:LVGO)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LVGO over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Matrix Capital Management, managed by David Goel and Paul Ferri, holds the number one position in Livongo Health, Inc. (NASDAQ:LVGO). Matrix Capital Management has a $21.9 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is Inherent Group, led by Tony Davis, holding a $9 million position; the fund has 11.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions include Renaissance Technologies, David Atterbury’s Whetstone Capital Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Inherent Group allocated the biggest weight to Livongo Health, Inc. (NASDAQ:LVGO), around 11.11% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, designating 2.91 percent of its 13F equity portfolio to LVGO.

Since Livongo Health, Inc. (NASDAQ:LVGO) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, John Smith Clark’s Southpoint Capital Advisors dropped the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $30.1 million in stock. Farallon Capital, also dumped its stock, about $15 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Livongo Health, Inc. (NASDAQ:LVGO). We will take a look at Cosan Limited (NYSE:CZZ), Blackbaud, Inc. (NASDAQ:BLKB), Sanderson Farms, Inc. (NASDAQ:SAFM), and GW Pharmaceuticals plc (NASDAQ:GWPH). This group of stocks’ market values are similar to LVGO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CZZ 15 141907 3
BLKB 22 107618 6
SAFM 17 330385 -19
GWPH 21 262831 -3
Average 18.75 210685 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $83 million in LVGO’s case. Blackbaud, Inc. (NASDAQ:BLKB) is the most popular stock in this table. On the other hand Cosan Limited (NYSE:CZZ) is the least popular one with only 15 bullish hedge fund positions. Livongo Health, Inc. (NASDAQ:LVGO) is not the least popular stock in this group but hedge fund interest is still below average. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on LVGO as the stock returned 280.5% since the end of March and outperformed the market by an even larger margin.

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