Hedge Funds’ #15 Stock Pick Debunked Naysayers

“I have been following Dr. Inan Dogan since this outbreak, and he is  a phenomenally intelligent researcher. One month ago, Dr. Dogan’s prediction that the total U.S. death toll would be 20,000+ by April 15th was deemed “radical”. His Recession is Imminent article in February was very timely. Now he believes we could quickly end lockdowns in NYC after some simple testing. A must read” were the words used by our readers to describe our latest article.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going even though the mainstream financial media journalists don’t agree with this approach. 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. Keeping this in mind, let’s take a look at whether salesforce.com, inc. (NYSE:CRM) is a good investment right now.

salesforce.com, inc. (NYSE:CRM) was in 112 hedge funds’ portfolios at the end of December. CRM has seen an increase in enthusiasm from smart money lately. There were 109 hedge funds in our database with CRM positions at the end of the previous quarter. Our calculations also showed that CRM ranked 15th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

If you listen to the mainstream financial media, you should avoid stock picking and invest in low-cost index funds. This is indeed what you should do if you want to generate average returns. Mainstream financial media journalists try to make you believe that it isn’t possible to pick winners and losers, and you should ignore the stock picks of hedge fund managers. You may remember reading an article in the WSJ that said “random dart throwing monkeys beat hedge fund stars”. What they fail to tell you is that the top 5 hedge fund stocks returned more than 30% since the end of 2018 and beat the S&P 500 Index by nearly 25 percentage points. You can’t explain this kind of outperformance by luck or coincidence. WSJ will need an army of monkeys to throw darts and tens of thousands of attempts to match these returns.

Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the latest hedge fund action encompassing salesforce.com, inc. (NYSE:CRM).

How have hedgies been trading salesforce.com, inc. (NYSE:CRM)?

Heading into the first quarter of 2020, a total of 112 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CRM over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in salesforce.com, inc. (NYSE:CRM) was held by Fisher Asset Management, which reported holding $1181.9 million worth of stock at the end of September. It was followed by Matrix Capital Management with a $816.3 million position. Other investors bullish on the company included Viking Global, Lone Pine Capital, and Altimeter Capital Management. In terms of the portfolio weights assigned to each position Matrix Capital Management allocated the biggest weight to salesforce.com, inc. (NYSE:CRM), around 17.38% of its 13F portfolio. HMI Capital is also relatively very bullish on the stock, designating 16.9 percent of its 13F equity portfolio to CRM.

As aggregate interest increased, key hedge funds have jumped into salesforce.com, inc. (NYSE:CRM) headfirst. Farallon Capital, created the biggest position in salesforce.com, inc. (NYSE:CRM). Farallon Capital had $280.5 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management also initiated a $152.6 million position during the quarter. The other funds with new positions in the stock are Daniel S. Och’s OZ Management, Doug Silverman and Alexander Klabin’s Senator Investment Group, and Christopher R. Hansen’s Valiant Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as salesforce.com, inc. (NYSE:CRM) but similarly valued. These stocks are NVIDIA Corporation (NASDAQ:NVDA), Amgen, Inc. (NASDAQ:AMGN), TOTAL S.A. (NYSE:TOT), and Netflix, Inc. (NASDAQ:NFLX). This group of stocks’ market valuations are similar to CRM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVDA 79 3179400 23
AMGN 58 2290267 3
TOT 17 1195776 -1
NFLX 114 13080883 11
Average 67 4936582 9

View table here if you experience formatting issues.

As you can see these stocks had an average of 67 hedge funds with bullish positions and the average amount invested in these stocks was $4937 million. That figure was $9799 million in CRM’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand TOTAL S.A. (NYSE:TOT) is the least popular one with only 17 bullish hedge fund positions. salesforce.com, inc. (NYSE:CRM) is not the most popular stock in this group but hedge fund interest is still above average. 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 lost 1.0% in 2020 through April 20th but still beat the market by 11 percentage points. Hedge funds were also right about betting on CRM as the stock returned 0.1% in 2020 (through April 20th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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