Do Hedge Funds Love Teladoc Health, Inc (TDOC)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Teladoc Health, Inc (NYSE:TDOC).

Is Teladoc Health, Inc (NYSE:TDOC) the right investment to pursue these days? Prominent investors were taking a bullish view. The number of bullish hedge fund positions rose by 1 in recent months. Teladoc Health, Inc (NYSE:TDOC) was in 43 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 50. Our calculations also showed that TDOC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Kamran Moghtaderi of Eversept Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI 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. Keeping this in mind we’re going to take a gander at the latest hedge fund action regarding Teladoc Health, Inc (NYSE:TDOC).

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

At the end of the second quarter, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the previous quarter. On the other hand, there were a total of 44 hedge funds with a bullish position in TDOC a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, ARK Investment Management held the most valuable stake in Teladoc Health, Inc (NYSE:TDOC), which was worth $2663.5 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $205.2 million worth of shares. Zevenbergen Capital Investments, Citadel Investment Group, and Himension Capital 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 Himension Capital allocated the biggest weight to Teladoc Health, Inc (NYSE:TDOC), around 12.84% of its 13F portfolio. ARK Investment Management is also relatively very bullish on the stock, designating 4.96 percent of its 13F equity portfolio to TDOC.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the most outsized call position in Teladoc Health, Inc (NYSE:TDOC). Millennium Management had $25.9 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also made a $16.6 million investment in the stock during the quarter. The other funds with new positions in the stock are David Fiszel’s Honeycomb Asset Management, Jinghua Yan’s TwinBeech Capital, and Kamran Moghtaderi’s Eversept Partners.

Let’s now review hedge fund activity in other stocks similar to Teladoc Health, Inc (NYSE:TDOC). We will take a look at Verisign, Inc. (NASDAQ:VRSN), Telefonica S.A. (NYSE:TEF), Consolidated Edison, Inc. (NYSE:ED), Realty Income Corporation (NYSE:O), DTE Energy Company (NYSE:DTE), ZTO Express (Cayman) Inc. (NYSE:ZTO), and Enphase Energy Inc (NASDAQ:ENPH). This group of stocks’ market caps resemble TDOC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $1292 million. That figure was $3574 million in TDOC’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 4 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 80.6. 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. 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 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 beat the market again by 5.6 percentage points. Unfortunately TDOC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TDOC were disappointed as the stock returned -23.8% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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