Do Hedge Funds Love DexCom, Inc. (DXCM)?

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 DexCom, Inc. (NASDAQ:DXCM).

Is DexCom, Inc. (NASDAQ:DXCM) a marvelous investment right now? The smart money was cutting their exposure. The number of bullish hedge fund positions dropped by 7 lately. DexCom, Inc. (NASDAQ:DXCM) was in 49 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 58. Our calculations also showed that DXCM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover 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 EV 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. Now let’s review the recent hedge fund action surrounding DexCom, Inc. (NASDAQ:DXCM).

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

At the end of June, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in DXCM over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Lone Pine Capital held the most valuable stake in DexCom, Inc. (NASDAQ:DXCM), which was worth $797.8 million at the end of the second quarter. On the second spot was Holocene Advisors which amassed $140.9 million worth of shares. Citadel Investment Group, OrbiMed Advisors, and Redmile 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 Parkman Healthcare Partners allocated the biggest weight to DexCom, Inc. (NASDAQ:DXCM), around 4.71% of its 13F portfolio. Engine No. 1 LLC is also relatively very bullish on the stock, setting aside 4.21 percent of its 13F equity portfolio to DXCM.

Since DexCom, Inc. (NASDAQ:DXCM) has experienced falling interest from hedge fund managers, logic holds that there exists a select few fund managers who sold off their positions entirely by the end of the second quarter. Interestingly, Renaissance Technologies dumped the biggest stake of all the hedgies watched by Insider Monkey, valued at close to $51.8 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund dumped about $48.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as DexCom, Inc. (NASDAQ:DXCM) but similarly valued. We will take a look at Kinder Morgan Inc (NYSE:KMI), DuPont de Nemours Inc (NYSE:DD), Electronic Arts Inc. (NASDAQ:EA), American International Group Inc (NYSE:AIG), Barclays PLC (NYSE:BCS), Microchip Technology Incorporated (NASDAQ:MCHP), and Amphenol Corporation (NYSE:APH). All of these stocks’ market caps are closest to DXCM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.4 hedge funds with bullish positions and the average amount invested in these stocks was $1414 million. That figure was $1634 million in DXCM’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 11 bullish hedge fund positions. DexCom, Inc. (NASDAQ:DXCM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DXCM is 64.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on DXCM as the stock returned 28.8% since the end of Q2 (through 10/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Suggested Articles:

• 30 Best Hotels in America in 2021
• 20 Largest Hotel Chains In The World
• 20 Biggest One Hit Wonders of All Time

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