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Were Hedge Funds Right About Piling Into Teladoc Health, Inc (TDOC)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Teladoc Health, Inc (NYSE:TDOC) and determine whether hedge funds had an edge regarding this stock.

Teladoc Health, Inc (NYSE:TDOC) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that TDOC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Ken Griffin

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the recent hedge fund action surrounding Teladoc Health, Inc (NYSE:TDOC).

What have hedge funds been doing with Teladoc Health, Inc (NYSE:TDOC)?

At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 57% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in TDOC over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TDOC A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Nancy Zevenbergen’s Zevenbergen Capital Investments has the number one position in Teladoc Health, Inc (NYSE:TDOC), worth close to $179 million, accounting for 6.7% of its total 13F portfolio. On Zevenbergen Capital Investments’s heels is D. E. Shaw of D E Shaw, with a $68.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish contain Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Zevenbergen Capital Investments allocated the biggest weight to Teladoc Health, Inc (NYSE:TDOC), around 6.74% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, dishing out 5.23 percent of its 13F equity portfolio to TDOC.

Consequently, key hedge funds have jumped into Teladoc Health, Inc (NYSE:TDOC) headfirst. D E Shaw, managed by D. E. Shaw, initiated the largest position in Teladoc Health, Inc (NYSE:TDOC). D E Shaw had $68.4 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also initiated a $9.5 million position during the quarter. The other funds with new positions in the stock are Michael Rockefeller and KarláKroeker’s Woodline Partners, Bruce Kovner’s Caxton Associates LP, and Pasco Alfaro / Richard Tumure’s Miura Global Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Teladoc Health, Inc (NYSE:TDOC) but similarly valued. These stocks are West Pharmaceutical Services Inc. (NYSE:WST), Yandex NV (NASDAQ:YNDX), NortonLifeLock Inc. (NASDAQ:NLOK), and Expeditors International of Washington (NASDAQ:EXPD). This group of stocks’ market valuations resemble TDOC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WST 27 346802 -2
YNDX 35 770433 -3
NLOK 42 1352392 -4
EXPD 31 346287 4
Average 33.75 703979 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $704 million. That figure was $533 million in TDOC’s case. NortonLifeLock Inc. (NASDAQ:NLOK) is the most popular stock in this table. On the other hand West Pharmaceutical Services Inc. (NYSE:WST) is the least popular one with only 27 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 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on TDOC, though not to the same extent, as the stock returned 23.1% during the second quarter and outperformed the market as well.

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