Is DXCM Stock A Buy or Sell?

After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards DexCom, Inc. (NASDAQ:DXCM).

Is DXCM stock a buy or sell? DexCom, Inc. (NASDAQ:DXCM) was in 52 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 58. DXCM investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. There were 58 hedge funds in our database with DXCM holdings at the end of September. Our calculations also showed that DXCM isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 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 124 percentage points since March 2017 (see the details here).

Steven Cohen of Point72 Asset Management

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 (or at the end of this article). Keeping this in mind we’re going to analyze the recent hedge fund action regarding DexCom, Inc. (NASDAQ:DXCM).

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

At the end of December, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in DXCM over the last 22 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Lone Pine Capital held the most valuable stake in DexCom, Inc. (NASDAQ:DXCM), which was worth $838.5 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $105.4 million worth of shares. OrbiMed Advisors, Point72 Asset Management, and Holocene Advisors 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 3.93% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, earmarking 3.59 percent of its 13F equity portfolio to DXCM.

Due to the fact that DexCom, Inc. (NASDAQ:DXCM) has witnessed declining sentiment from the smart money, it’s safe to say that there were a few funds that decided to sell off their entire stakes in the fourth quarter. It’s worth mentioning that Rajiv Jain’s GQG Partners said goodbye to the largest investment of the 750 funds monitored by Insider Monkey, valued at close to $277.7 million in stock. James E. Flynn’s fund, Deerfield Management, also dumped its stock, about $85.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 6 funds in the fourth quarter.

Let’s check out hedge fund activity in other stocks similar to DexCom, Inc. (NASDAQ:DXCM). These stocks are Aptiv PLC (NYSE:APTV), Parker-Hannifin Corporation (NYSE:PH), Ford Motor Company (NYSE:F), Trane Technologies plc (NYSE:TT), Centene Corporation (NYSE:CNC), Xilinx, Inc. (NASDAQ:XLNX), and Lloyds Banking Group PLC (NYSE:LYG). This group of stocks’ market values are similar to DXCM’s market value.

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As you can see these stocks had an average of 43.1 hedge funds with bullish positions and the average amount invested in these stocks was $1728 million. That figure was $1665 million in DXCM’s case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 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 64.4. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately DXCM wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on DXCM were disappointed as the stock returned -6.8% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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