We recently compiled a list of the 10 Best Growth Stocks To Buy Now According To Billionaire Ray Dalio. In this article, we are going to take a look at where DexCom, Inc. (NASDAQ:DXCM) stands against the other growth stocks.
Ray Dalio is one of the most successful investors in Wall Street’s history. He has invested through his firm Bridgewater Associates, and according to Insider Monkey’s research, Bridgewater had a 13F portfolio worth $19.7 billion as of Q1 2024 end. What’s more, is that we also looked at the top hedge funds on Wall Street as part of our coverage of 23 Best Hedge Funds of All Time and discovered that Bridgewater Associates ranked in the top five due to its $30 billion in gains since inception.
Looking at these, it’s clear that Dalio and his firm must be doing at least something right. Ray Dalio is a macro player who not only loves to look at the broader trends that affect the economy, but he also loves diversification and selling stocks at the right time. This approach differs from several other hedge funds which choose to focus on specific companies or are proponents of buying and holding stocks for the long term. Dalio’s strategy allows his fund to manage a changing economic and investment climate, as part of what is dubbed an All Weather Strategy.
However, despite his success, 2024 has been a mixed year for Bridgewater Associates. The firm, currently headed by CEO Nir Bar Dea, is currently shaking things up as its Pure Alpha fund has lost 4% for the last four years. This fund also had one of its worst years in history in 2023, but the changes do appear to be making their mark. This is because in Q1, the fund posted 16% in returns which were higher than the 4.59% in gains made by global hedge funds.
As for Dalio, even though he has moved forward from directly overseeing Bridgewater’s affairs, the investment guru regularly shares his wisdom with the world. He started 2024 by listing five key forces that will play a dominant theme in the investment environment this year. In a LinkedIn post, the billionaire shared that these forces are those that determine how the economy, the American and global political systems, forces of nature, and humanity’s innovation work.
While these forces are important for 2024, Dalio’s life’s work has focused on studying them over the course of the years and analyzing how they match similar trends in history. This makes his investment approach one of the most unique ones in the industry, and it appears to be yielding results as between 1991 and 2022, Bridgewater’s Pure Alpha fund has delivered 11.4% in average annual returns.
Dalio is also one of the few investors in the world who takes a serious approach to studying history and understanding the implications on the broader investing environment. Ever eager to share his insights, the famed investor gave a talk at Columbia Business School in April. Commenting on the investment approach at Bridgewater, the billionaire shared his values, philosophy, and guiding beacons for the process. He started out by sharing that he began his career by trading commodities because they had low margin requirements which would let him make more money. The stock market crash of 1982, which forced Dalio to borrow $4,000 from his father to pay bills was also critical in formulating his investment approach. As we’ve mentioned above, diversification is a key theme of Dalio’s All Weather Strategy, and the market crash influenced this approach:
And the way I looked at the risk, is I said, it’s like I, I, had a visual image that there’s this jungle there. And if I can cross the jungle without getting killed to the other side I would be okay. But I have to go through that, and then, or I could stay on the safe life side. And not take those risks. And how would I do that? And that was a problem that I had to figure out. And I realized two things I needed to do. I needed to diversify because it’s like my 15 uncorrelated returns stream mantra. I’ve realized that if I can have debts, 15 good uncorrelated return streams that I could reduce my risk by 80% with keeping the same expected returns.
So that was a big thing. And the other thing is I realized that I needed to do it with people who were on the mission who could see what I couldn’t see. I wanted people that we would stress test each other and challenge each other. We all see differently. Each one of you, have what you see is different from the way other people see. And, and when you start to have an appreciation of how people see things differently and you can get through that, that’s a great power. And so, I, it was like going into the jungle with others who were on the same mission with me. And we’d protect each other and so on.
Finally, before we get to Ray Dalio’s top growth stock picks, it’s also important to understand why such stocks are important particularly in today’s investment environment. US economic growth slowed down to 1.6% in Q1 from 2.4% in Q4 2023. At the same time, while the stock market has flourished on the AI front, other sectors have shown that persistently high inflation and tight credit conditions are making their mark. Since the economy is the sum product goods and services produced, firms whose revenue growth outpaces the consumer price index (CPI) inflation of 3.3% for May and the GDP growth are adding more customers to their top line instead of simply matching economic trends. Combining such stocks with the investment principles of the legendary Ray Dalio can help gain a better understanding of some of the market’s top sectors.
With these details in mind, let’s take a look at the top growth stocks that Ray Dalio and Bridgewater Associates have invested in.
Our Methodology
To make our list of Ray Dalio’s top growth stocks, we analyzed Bridgewater Associate’s 13F filings for Q1 2024 and picked out ten stocks with strong fiscal year annual revenue growth among the top 80 stocks.
A doctor demonstrating how to use the medical device to a patient with diabetes.
DexCom, Inc. (NASDAQ:DXCM)
Latest Fiscal Year Annual Growth Rate: 24.49%
Bridgewater Associates’ Q1 2024 Investment: $51 million
DexCom, Inc. (NASDAQ:DXCM) is a medical devices company that makes software to allow diabetes patients to monitor their glucose levels. The firm enjoys a dominant position in its market due to its technological advantages which allow diabetes patients to monitor their glucose levels around the clock. This provides superior monitor capabilities over the traditional finger prick tests, and DexCom, Inc. (NASDAQ:DXCM) has also developed a global operations base that allows it to target several countries with its products. However, its very strength of having a robust product can prove to be a headwind in the off case that a strong competitor emerges or the diabetes market undergoes a paradigm shift. This is because DexCom, Inc. (NASDAQ:DXCM) does not target any other markets, in a classical case of the proverbial all eggs being placed in one basket.
This was also evident in 2023, which was the year of weight loss drugs on Wall Street. The shares tanked by 45% between July and October, as investors were worried that weight loss drugs could upend the diabetes market. However, as Artisan Partners notes in its Q4 2023 investor letter, these fears were short lived. Here’s what it had to say about DexCom, Inc. (NASDAQ:DXCM):
DexCom is the leader in continuous glucose-monitoring systems (CGM). We believe it is well positioned to continue penetrating the Type 1 diabetes market and to drive adoption in the much larger Type 2 diabetes market, with data increasingly supporting the clinical and economic case for using CGM sensors. By most indicators, DexCom is poised for a period of significant top- and bottom-line growth. Having made substantial investments in global distribution, product development and branding, the company has a receptive base of patients, physicians and payors ready for its newly launched next-generation G7 sensor. Shares experienced weakness earlier in the year due to market concerns that the rapid growth of GLP-1 diabetes/obesity drugs will reduce demand for diabetes management technologies. However, our view is that while the magnitude of the GLP-1 adoption will likely have both good and bad impacts on how CGMs are used, these changes will be slow to play out. Given this view, and an opportunistic valuation, we added to our position in Q4. Our patience was rewarded as shares rallied after the company reported strong financial results and management provided evidence of the synergies between CGMs and GLP-1 drugs in the fight against the obesity epidemic.
Overall DXCM ranks 5th on our list of the best growth stocks to buy according to billionaire Ray Dalio. You can visit 10 Best Growth Stocks To Buy Now According To Billionaire Ray Dalio to see the other growth stocks that are on hedge funds’ radar. While we acknowledge the potential of DXCM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DXCM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.