The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Teladoc Inc (NYSE:TDOC), and what that likely means for the prospects of the company and its stock.
Is Teladoc Inc (NYSE:TDOC) a good investment now? Money managers are turning less bullish. The number of bullish hedge fund positions fell by 1 lately. 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 below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the key hedge fund action encompassing Teladoc Inc (NYSE:TDOC).
Hedge fund activity in Teladoc Inc (NYSE:TDOC)
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TDOC over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management has the largest position in Teladoc Inc (NYSE:TDOC), worth close to $35.6 million, accounting for 6.1% of its total 13F portfolio. Coming in second is Aequim Alternative Investments, managed by Franklin Parlamis, which holds a $13.1 million position; 2.6% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions consist of Mario Gabelli’s GAMCO Investors, Charles Clough’s Clough Capital Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Sectoral Asset Management allocated the biggest weight to Teladoc Inc (NYSE:TDOC), around 6.14% of its 13F portfolio. Aequim Alternative Investments is also relatively very bullish on the stock, dishing out 2.61 percent of its 13F equity portfolio to TDOC.
Due to the fact that Teladoc Inc (NYSE:TDOC) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of funds who sold off their entire stakes in the third quarter. It’s worth mentioning that Jeremy Green’s Redmile Group said goodbye to the largest position of the 750 funds watched by Insider Monkey, valued at close to $30.7 million in stock. Joseph Edelman’s fund, Perceptive Advisors, also sold off its stock, about $20.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Teladoc Inc (NYSE:TDOC). These stocks are JetBlue Airways Corporation (NASDAQ:JBLU), Cimarex Energy Co (NYSE:XEC), Ultrapar Participacoes SA (NYSE:UGP), and Prosperity Bancshares, Inc. (NYSE:PB). This group of stocks’ market values are similar to TDOC’s market value.
|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 19 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $102 million in TDOC’s case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 5 bullish hedge fund positions. Teladoc Inc (NYSE:TDOC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on TDOC as the stock returned 23.7% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.