Cornerstone OnDemand, Inc. (CSOD): Hedge Funds Going Back and Forth

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Cornerstone OnDemand, Inc. (NASDAQ:CSOD).

Is Cornerstone OnDemand, Inc. (NASDAQ:CSOD) undervalued? The smart money is taking a bearish view. The number of long hedge fund bets were trimmed by 5 lately. Our calculations also showed that CSOD isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CSOD was in 24 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with CSOD holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Robert Moses RGM Capital

Robert G. Moses of RGM Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a glance at the recent hedge fund action encompassing Cornerstone OnDemand, Inc. (NASDAQ:CSOD).

What does smart money think about Cornerstone OnDemand, Inc. (NASDAQ:CSOD)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. By comparison, 29 hedge funds held shares or bullish call options in CSOD a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Cornerstone OnDemand, Inc. (NASDAQ:CSOD) was held by Rivulet Capital, which reported holding $124.6 million worth of stock at the end of September. It was followed by Eminence Capital with a $79.8 million position. Other investors bullish on the company included Praesidium Investment Management Company, RGM Capital, and Indaba Capital Management. In terms of the portfolio weights assigned to each position Indaba Capital Management allocated the biggest weight to Cornerstone OnDemand, Inc. (NASDAQ:CSOD), around 17.93% of its 13F portfolio. Rivulet Capital is also relatively very bullish on the stock, earmarking 7.98 percent of its 13F equity portfolio to CSOD.

Seeing as Cornerstone OnDemand, Inc. (NASDAQ:CSOD) has faced falling interest from the smart money, we can see that there were a few hedge funds that decided to sell off their full holdings last quarter. Interestingly, Robert Joseph Caruso’s Select Equity Group sold off the largest investment of the 750 funds watched by Insider Monkey, valued at about $24.9 million in stock, and Clifton S. Robbins’s Blue Harbour Group was right behind this move, as the fund said goodbye to about $12.3 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Cornerstone OnDemand, Inc. (NASDAQ:CSOD). We will take a look at Sunstone Hotel Investors Inc (NYSE:SHO), Columbia Banking System Inc (NASDAQ:COLB), Endava plc (NYSE:DAVA), and Sanmina Corporation (NASDAQ:SANM). All of these stocks’ market caps resemble CSOD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHO 19 110027 -3
COLB 12 81200 2
DAVA 9 54064 2
SANM 15 146797 -6
Average 13.75 98022 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $98 million. That figure was $505 million in CSOD’s case. Sunstone Hotel Investors Inc (NYSE:SHO) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on CSOD, though not to the same extent, as the stock returned 24.4% in Q2 (through June 10th) and outperformed the market as well.

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