Was The Smart Money Right About Piling Into Teladoc Health (TDOC)?

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 Melvin Capital’s recent GameStop 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 Teladoc Health, Inc (NYSE:TDOC) a buy right now? The smart money was taking an optimistic view. The number of long hedge fund bets moved up by 3 in recent months. Teladoc Health, Inc (NYSE:TDOC) was in 50 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 47. 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 Q4 rankings). There were 47 hedge funds in our database with TDOC holdings at the end of September.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Henrik Rhenman of Rhenman & Partners Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s analyze the latest hedge fund action surrounding Teladoc Health, Inc (NYSE:TDOC).

Do Hedge Funds Think TDOC Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in TDOC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Teladoc Health, Inc (NYSE:TDOC) was held by ARK Investment Management, which reported holding $1566.2 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $349.3 million position. Other investors bullish on the company included Zevenbergen Capital Investments, Hitchwood Capital Management, and Himension Capital. In terms of the portfolio weights assigned to each position Himension Capital allocated the biggest weight to Teladoc Health, Inc (NYSE:TDOC), around 14.49% of its 13F portfolio. Truvvo Partners is also relatively very bullish on the stock, earmarking 9.95 percent of its 13F equity portfolio to TDOC.

Consequently, key hedge funds have been driving this bullishness. Hitchwood Capital Management, managed by James Crichton, created the largest position in Teladoc Health, Inc (NYSE:TDOC). Hitchwood Capital Management had $65.1 million invested in the company at the end of the quarter. Jay Chen’s Himension Capital also made a $43.1 million investment in the stock during the quarter. The following funds were also among the new TDOC investors: Bobby Yazdani and Babak Poushanchi’s Cota Capital, David Atterbury’s Whetstone Capital Advisors, and Henrik Rhenman’s Rhenman & Partners Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Teladoc Health, Inc (NYSE:TDOC) but similarly valued. We will take a look at Huazhu Group Limited (NASDAQ:HTHT), Corteva, Inc. (NYSE:CTVA), Motorola Solutions Inc (NYSE:MSI), Stanley Black & Decker, Inc. (NYSE:SWK), Canadian Natural Resources Limited (NYSE:CNQ), Archer Daniels Midland Company (NYSE:ADM), and Fastenal Company (NASDAQ:FAST). This group of stocks’ market valuations are closest to TDOC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HTHT 23 612105 2
CTVA 38 1398326 2
MSI 35 777259 6
SWK 38 846102 0
CNQ 29 341108 -1
ADM 35 703261 9
FAST 30 612311 -8
Average 32.6 755782 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.6 hedge funds with bullish positions and the average amount invested in these stocks was $756 million. That figure was $2617 million in TDOC’s case. Corteva, Inc. (NYSE:CTVA) is the most popular stock in this table. On the other hand Huazhu Group Limited (NASDAQ:HTHT) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Teladoc Health, Inc (NYSE:TDOC) is more popular among hedge funds. Our overall hedge fund sentiment score for TDOC is 88. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately TDOC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TDOC were disappointed as the stock returned -13.8% since the end of the fourth quarter (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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