We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Teladoc Health, Inc (NYSE:TDOC).
Is TDOC a good stock to buy now? Prominent investors were in an optimistic mood. The number of bullish hedge fund positions inched up by 3 recently. Teladoc Health, Inc (NYSE:TDOC) was in 47 hedge funds’ portfolios at the end of September. The all time high for this statistic is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TDOC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to analyze the key hedge fund action surrounding Teladoc Health, Inc (NYSE:TDOC).
Do Hedge Funds Think TDOC Is A Good Stock To Buy Now?
At third quarter’s end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the second quarter of 2020. By comparison, 20 hedge funds held shares or bullish call options in TDOC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Teladoc Health, Inc (NYSE:TDOC), with a stake worth $241.6 million reported as of the end of September. Trailing Arrowstreet Capital was Zevenbergen Capital Investments, which amassed a stake valued at $204 million. Renaissance Technologies, Citadel Investment Group, 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 Copernicus Capital Management allocated the biggest weight to Teladoc Health, Inc (NYSE:TDOC), around 4.49% of its 13F portfolio. Zevenbergen Capital Investments is also relatively very bullish on the stock, earmarking 4.09 percent of its 13F equity portfolio to TDOC.
As one would reasonably expect, key money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, initiated the most valuable position in Teladoc Health, Inc (NYSE:TDOC). Alyeska Investment Group had $14.3 million invested in the company at the end of the quarter. John Orrico’s Water Island Capital also made a $13.4 million investment in the stock during the quarter. The following funds were also among the new TDOC investors: Dmitry Balyasny’s Balyasny Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Carl Tiedemann and Michael Tiedemann’s TIG Advisors.
Let’s also examine hedge fund activity in other stocks similar to Teladoc Health, Inc (NYSE:TDOC). We will take a look at Garmin Ltd. (NASDAQ:GRMN), Telefonica S.A. (NYSE:TEF), EPAM Systems Inc (NYSE:EPAM), Maxim Integrated Products Inc. (NASDAQ:MXIM), Akamai Technologies, Inc. (NASDAQ:AKAM), The Cooper Companies, Inc. (NYSE:COO), and Vulcan Materials Company (NYSE:VMC). All of these stocks’ market caps are closest to TDOC’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $865 million. That figure was $997 million in TDOC’s case. Maxim Integrated Products Inc. (NASDAQ:MXIM) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 5 bullish hedge fund positions. Teladoc Health, Inc (NYSE:TDOC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TDOC is 82.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately TDOC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TDOC were disappointed as the stock returned -9.6% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.