How do we determine whether ServiceNow Inc (NYSE:NOW) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s analyze the key hedge fund action regarding ServiceNow Inc (NYSE:NOW).
What does the smart money think about ServiceNow Inc (NYSE:NOW)?
At the end of the first quarter, a total of 65 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NOW over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Coatue Management held the most valuable stake in ServiceNow Inc (NYSE:NOW), which was worth $670 million at the end of the first quarter. On the second spot was Lone Pine Capital which amassed $420.5 million worth of shares. Moreover, Melvin Capital Management, Alkeon Capital Management, and Tiger Global Management were also bullish on ServiceNow Inc (NYSE:NOW), allocating a large percentage of their portfolios to this stock.
Consequently, some big names have jumped into ServiceNow Inc (NYSE:NOW) headfirst. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, assembled the largest call position in ServiceNow Inc (NYSE:NOW). Alkeon Capital Management had $246.1 million invested in the company at the end of the quarter. Alex Sacerdote’s Whale Rock Capital Management also made a $176.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, Ryan Frick and Oliver Evans’s Dorsal Capital Management, and Zach Schreiber’s Point State Capital.
Let’s go over hedge fund activity in other stocks similar to ServiceNow Inc (NYSE:NOW). These stocks are Waste Management, Inc. (NYSE:WM), Ecopetrol S.A. (NYSE:EC), JD.Com Inc (NASDAQ:JD), and Telefonica S.A. (NYSE:TEF). This group of stocks’ market values are similar to NOW’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $1927 million. That figure was $3794 million in NOW’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks ServiceNow Inc (NYSE:NOW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on NOW as the stock returned 6.5% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.