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Did Hedge Funds Make The Right Call On Tandem Diabetes Care Inc (TNDM) ?

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 first 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 4.5 years and analyze what the smart money thinks of Tandem Diabetes Care Inc (NASDAQ:TNDM) based on that data and determine whether they were really smart about the stock.

Is Tandem Diabetes Care Inc (NASDAQ:TNDM) a worthy stock to buy now? Money managers were in a bearish mood. The number of bullish hedge fund bets were cut by 11 recently. Our calculations also showed that TNDM 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).

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.

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the new hedge fund action surrounding Tandem Diabetes Care Inc (NASDAQ:TNDM).

What does smart money think about Tandem Diabetes Care Inc (NASDAQ:TNDM)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TNDM over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TNDM A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Jeremy Green’s Redmile Group has the number one position in Tandem Diabetes Care Inc (NASDAQ:TNDM), worth close to $56.7 million, amounting to 1.6% of its total 13F portfolio. The second largest stake is held by Principal Global Investors of Columbus Circle Investors, with a $37.7 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions consist of Renaissance Technologies, James E. Flynn’s Deerfield Management and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Granite Point Capital allocated the biggest weight to Tandem Diabetes Care Inc (NASDAQ:TNDM), around 3.82% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, designating 3.32 percent of its 13F equity portfolio to TNDM.

Judging by the fact that Tandem Diabetes Care Inc (NASDAQ:TNDM) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there were a few funds that elected to cut their full holdings in the first quarter. At the top of the heap, Samuel Isaly’s OrbiMed Advisors dropped the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $68 million in stock. Mitchell Blutt’s fund, Consonance Capital Management, also dropped its stock, about $32.8 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 11 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Tandem Diabetes Care Inc (NASDAQ:TNDM). These stocks are Cree, Inc. (NASDAQ:CREE), First Financial Bankshares Inc (NASDAQ:FFIN), Southwest Gas Holdings, Inc. (NYSE:SWX), and American Campus Communities, Inc. (NYSE:ACC). All of these stocks’ market caps match TNDM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CREE 16 309952 -9
FFIN 14 28294 1
SWX 13 79506 -10
ACC 16 195709 -5
Average 14.75 153365 -5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $246 million in TNDM’s case. Cree, Inc. (NASDAQ:CREE) is the most popular stock in this table. On the other hand Southwest Gas Holdings, Inc. (NYSE:SWX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Tandem Diabetes Care Inc (NASDAQ:TNDM) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on TNDM as the stock returned 53.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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