Hedge Funds Have Never Been This Bullish On Livongo Health, Inc. (LVGO)

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 (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Livongo Health, Inc. (NASDAQ:LVGO).

Livongo Health, Inc. (NASDAQ:LVGO) investors should pay attention to an increase in hedge fund interest recently. Our calculations also showed that LVGO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

David Atterbury - Whetstone Capital

David Atterbury of Whetstone Capital Advisors

With all of this in mind let’s take a glance at the recent hedge fund action encompassing Livongo Health, Inc. (NASDAQ:LVGO).

How have hedgies been trading Livongo Health, Inc. (NASDAQ:LVGO)?

At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LVGO over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Southpoint Capital Advisors held the most valuable stake in Livongo Health, Inc. (NASDAQ:LVGO), which was worth $30.1 million at the end of the third quarter. On the second spot was Inherent Group which amassed $16.5 million worth of shares. Farallon Capital, Whetstone Capital Advisors, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Inherent Group allocated the biggest weight to Livongo Health, Inc. (NASDAQ:LVGO), around 14.23% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, designating 2.29 percent of its 13F equity portfolio to LVGO.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Southpoint Capital Advisors, managed by John Smith Clark, assembled the biggest position in Livongo Health, Inc. (NASDAQ:LVGO). Southpoint Capital Advisors had $30.1 million invested in the company at the end of the quarter. Farallon Capital also made a $15 million investment in the stock during the quarter. The other funds with brand new LVGO positions are David Atterbury’s Whetstone Capital Advisors, Zachary Miller’s Parian Global Management, and John Osterweis’s Osterweis Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Livongo Health, Inc. (NASDAQ:LVGO) but similarly valued. We will take a look at FGL Holdings (NYSE:FG), MakeMyTrip Limited (NASDAQ:MMYT), Glaukos Corporation (NYSE:GKOS), and Bottomline Technologies (NASDAQ:EPAY). This group of stocks’ market valuations resemble LVGO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FG 17 162275 -8
MMYT 14 71965 4
GKOS 16 133423 4
EPAY 17 132162 -5
Average 16 124956 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $100 million in LVGO’s case. FGL Holdings (NYSE:FG) is the most popular stock in this table. On the other hand MakeMyTrip Limited (NASDAQ:MMYT) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Livongo Health, Inc. (NASDAQ:LVGO) 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 13.0% in 2020 through April 6th but still managed to beat the market by 4.2 percentage points. Hedge funds were also right about betting on LVGO as the stock returned 20.1% so far in 2020 (through April 6th) 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.