Was The Smart Money Right About DexCom (DXCM)?

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In this article we are going to use hedge fund sentiment as a tool and determine whether DexCom, Inc. (NASDAQ:DXCM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

DexCom, Inc. (NASDAQ:DXCM) was in 52 hedge funds’ portfolios at the end of December. The all time high for this statistic is 58. DXCM investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 58 hedge funds in our database with DXCM positions at the end of the third quarter. 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

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. With all of this in mind we’re going to take a peek at the latest hedge fund action surrounding DexCom, Inc. (NASDAQ:DXCM).

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

At fourth quarter’s end, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DXCM over the last 22 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in DexCom, Inc. (NASDAQ:DXCM) was held by Lone Pine Capital, which reported holding $838.5 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $105.4 million position. Other investors bullish on the company included OrbiMed Advisors, Point72 Asset Management, and Holocene Advisors. 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, designating 3.59 percent of its 13F equity portfolio to DXCM.

Seeing as DexCom, Inc. (NASDAQ:DXCM) has witnessed a decline in interest from the smart money, we can see that there is a sect of hedge funds who were dropping their entire stakes heading into Q1. It’s worth mentioning that Rajiv Jain’s GQG Partners dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling about $277.7 million in stock, and James E. Flynn’s Deerfield Management was right behind this move, as the fund sold off about $85.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds heading into Q1.

Let’s now take a look at hedge fund activity in other stocks similar to DexCom, Inc. (NASDAQ:DXCM). We will take a look at 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). All of these stocks’ market caps match DXCM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APTV 44 1354021 6
PH 56 1601655 5
F 41 1652221 3
TT 34 998785 -3
CNC 56 2646289 -2
XLNX 66 3837083 20
LYG 5 4389 0
Average 43.1 1727778 4.1

View table here if you experience formatting issues.

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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately DXCM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DXCM were disappointed as the stock returned 4.4% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.