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Hedge Funds Have Never Been This Bullish On DexCom, Inc. (DXCM)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether DexCom, Inc. (NASDAQ:DXCM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is DexCom, Inc. (NASDAQ:DXCM) going to take off soon? Investors who are in the know are betting on the stock. The number of bullish hedge fund positions improved by 4 recently. Our calculations also showed that DXCM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). DXCM was in 40 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 36 hedge funds in our database with DXCM positions at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the latest hedge fund action surrounding DexCom, Inc. (NASDAQ:DXCM).

How are hedge funds trading DexCom, Inc. (NASDAQ:DXCM)?

At the end of the fourth quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DXCM over the last 18 quarters. So, let’s examine 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, Lone Pine Capital, holds the most valuable position in DexCom, Inc. (NASDAQ:DXCM). Lone Pine Capital has a $231.6 million position in the stock, comprising 1.2% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $153.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Ken Griffin’s Citadel Investment Group, Principal Global Investors’s Columbus Circle Investors and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Integral Health Asset Management allocated the biggest weight to DexCom, Inc. (NASDAQ:DXCM), around 5.11% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, dishing out 4.7 percent of its 13F equity portfolio to DXCM.

As one would reasonably expect, some big names have been driving this bullishness. Lone Pine Capital, assembled the largest position in DexCom, Inc. (NASDAQ:DXCM). Lone Pine Capital had $231.6 million invested in the company at the end of the quarter. James E. Flynn’s Deerfield Management also initiated a $50.4 million position during the quarter. The following funds were also among the new DXCM investors: Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Bhagwan Jay Rao’s Integral Health Asset Management, and Michael Rockefeller and Karl Kroeker’s Woodline Partners.

Let’s now review 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 KeyCorp (NYSE:KEY), Essex Property Trust Inc (NYSE:ESS), Rogers Communications Inc. (NYSE:RCI), and First Republic Bank (NYSE:FRC). This group of stocks’ market values match DXCM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KEY 36 778453 6
ESS 33 568820 14
RCI 13 313836 -10
FRC 27 939192 7
Average 27.25 650075 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $1053 million in DXCM’s case. KeyCorp (NYSE:KEY) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks DexCom, Inc. (NASDAQ:DXCM) is more popular among hedge funds. 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. These stocks lost 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on DXCM as the stock returned -7.5% so far in Q1 (through March 16th) 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.

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.

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