Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Teladoc Health, Inc. (NYSE:TDOC) was in 17 hedge funds’ portfolios at the end of March. TDOC shareholders have witnessed a decrease in hedge fund interest lately. There were 19 hedge funds in our database with TDOC positions at the end of the previous quarter. Our calculations also showed that TDOC isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman, GLG Partners
Let’s take a glance at the latest hedge fund action regarding Teladoc Health, Inc. (NYSE:TDOC).
How have hedgies been trading Teladoc Health, Inc. (NYSE:TDOC)?
At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the fourth quarter of 2018. On the other hand, there were a total of 17 hedge funds with a bullish position in TDOC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Sectoral Asset Management was the largest shareholder of Teladoc Health, Inc. (NYSE:TDOC), with a stake worth $32.9 million reported as of the end of March. Trailing Sectoral Asset Management was Perceptive Advisors, which amassed a stake valued at $27.5 million. Redmile Group, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Teladoc Health, Inc. (NYSE:TDOC) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedgies that elected to cut their entire stakes heading into Q3. Intriguingly, Richard Driehaus’s Driehaus Capital said goodbye to the biggest position of the 700 funds tracked by Insider Monkey, comprising about $7.2 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund dumped about $3.8 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to Teladoc Health, Inc. (NYSE:TDOC). These stocks are CoreSite Realty Corp (NYSE:COR), First Financial Bankshares Inc (NASDAQ:FFIN), Verint Systems Inc. (NASDAQ:VRNT), and Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL). 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 |
|---|---|---|---|
| COR | 13 | 226074 | -2 |
| FFIN | 13 | 32742 | 7 |
| VRNT | 22 | 370064 | 4 |
| CBRL | 23 | 144940 | 4 |
| Average | 17.75 | 193455 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $167 million in TDOC’s case. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is the most popular stock in this table. On the other hand CoreSite Realty Corp (NYSE:COR) is the least popular one with only 13 bullish hedge fund positions. Teladoc Health, Inc. (NYSE:TDOC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on TDOC as the stock returned 10.8% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
