Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 Guardant Health, Inc. (NASDAQ:GH).
Guardant Health, Inc. (NASDAQ:GH) was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. GH has seen an increase in hedge fund sentiment in recent months. There were 25 hedge funds in our database with GH holdings at the end of the previous quarter. Our calculations also showed that GH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Philip Hempleman of Ardsley Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the new hedge fund action regarding Guardant Health, Inc. (NASDAQ:GH).
Hedge fund activity in Guardant Health, Inc. (NASDAQ:GH)
At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in GH a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Viking Global was the largest shareholder of Guardant Health, Inc. (NASDAQ:GH), with a stake worth $299.6 million reported as of the end of September. Trailing Viking Global was Coatue Management, which amassed a stake valued at $152.5 million. Redmile Group, Millennium Management, and Ardsley Partners 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 Ardsley Partners allocated the biggest weight to Guardant Health, Inc. (NASDAQ:GH), around 4.07% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, designating 2.99 percent of its 13F equity portfolio to GH.
As aggregate interest increased, key hedge funds were breaking ground themselves. Redmile Group, managed by Jeremy Green, created the biggest position in Guardant Health, Inc. (NASDAQ:GH). Redmile Group had $30.5 million invested in the company at the end of the quarter. Kevin Molloy’s Iron Triangle Partners also made a $11.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Bhagwan Jay Rao’s Integral Health Asset Management, Kamran Moghtaderi’s Eversept Partners, and Efrem Kamen’s Pura Vida Investments.
Let’s now review hedge fund activity in other stocks similar to Guardant Health, Inc. (NASDAQ:GH). We will take a look at Robert Half International Inc. (NYSE:RHI), Gentex Corporation (NASDAQ:GNTX), Steel Dynamics, Inc. (NASDAQ:STLD), and 10x Genomics, Inc. (NASDAQ:TXG). This group of stocks’ market caps resemble GH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RHI | 23 | 550331 | -1 |
| GNTX | 32 | 616430 | -1 |
| STLD | 35 | 506217 | 6 |
| TXG | 12 | 172329 | -7 |
| Average | 25.5 | 461327 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $461 million. That figure was $640 million in GH’s case. Steel Dynamics, Inc. (NASDAQ:STLD) is the most popular stock in this table. On the other hand 10x Genomics, Inc. (NASDAQ:TXG) is the least popular one with only 12 bullish hedge fund positions. Guardant Health, Inc. (NASDAQ:GH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on GH, though not to the same extent, as the stock returned -24.4% during the first two and a half months of 2020 (through March 16th) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
