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Hedge Funds Keep Piling Into Guardant Health, Inc. (GH)

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 Guardant Health, Inc. (NASDAQ:GH) and determine whether hedge funds skillfully traded this stock.

Is Guardant Health, Inc. (NASDAQ:GH) a splendid stock to buy now? The smart money was taking a bullish view. The number of long hedge fund bets increased by 9 recently. Guardant Health, Inc. (NASDAQ:GH) was in 36 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GH 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). There were 27 hedge funds in our database with GH positions at the end of the first quarter.

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

To the average investor there are dozens of gauges investors put to use to analyze publicly traded companies. A duo of the most innovative gauges are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the best money managers can beat the market by a very impressive amount (see the details here).

Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to take a look at the fresh hedge fund action surrounding Guardant Health, Inc. (NASDAQ:GH).

How have hedgies been trading Guardant Health, Inc. (NASDAQ:GH)?

At the end of June, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in GH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is GH A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Andreas Halvorsen’s Viking Global has the largest position in Guardant Health, Inc. (NASDAQ:GH), worth close to $248.9 million, amounting to 1.1% of its total 13F portfolio. Sitting at the No. 2 spot is Coatue Management, led by Philippe Laffont, holding a $127.8 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism consist of Paul Marshall and Ian Wace’s Marshall Wace LLP, Arthur B Cohen and Joseph Healey’s Healthcor Management LP and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Iron Triangle Partners allocated the biggest weight to Guardant Health, Inc. (NASDAQ:GH), around 3.38% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, dishing out 2.44 percent of its 13F equity portfolio to GH.

As aggregate interest increased, key money managers were leading the bulls’ herd. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, initiated the biggest position in Guardant Health, Inc. (NASDAQ:GH). Healthcor Management LP had $58.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $26.2 million position during the quarter. The following funds were also among the new GH investors: Jeremy Green’s Redmile Group, Renaissance Technologies, and Peter Muller’s PDT Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Guardant Health, Inc. (NASDAQ:GH) but similarly valued. These stocks are Graco Inc. (NYSE:GGG), LKQ Corporation (NASDAQ:LKQ), Entegris Inc (NASDAQ:ENTG), NRG Energy Inc (NYSE:NRG), Globe Life Inc. (NYSE:GL), Universal Health Services, Inc. (NYSE:UHS), and Paylocity Holding Corp (NASDAQ:PCTY). This group of stocks’ market caps match GH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GGG 32 204789 11
LKQ 44 1536917 3
ENTG 28 601485 9
NRG 36 1095466 -2
GL 33 706101 11
UHS 38 446238 8
PCTY 24 476733 -9
Average 33.6 723961 4.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.6 hedge funds with bullish positions and the average amount invested in these stocks was $724 million. That figure was $768 million in GH’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand Paylocity Holding Corp (NASDAQ:PCTY) is the least popular one with only 24 bullish hedge fund positions. Guardant Health, Inc. (NASDAQ:GH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GH is 70. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on GH, though not to the same extent, as the stock returned 17.7% since the end of June and outperformed the market as well.

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