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Hedge Funds Have Never Been This Bullish On Zendesk Inc (ZEN)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Zendesk Inc (NYSE:ZEN) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Zendesk Inc (NYSE:ZEN) the right pick for your portfolio? The smart money was becoming more confident. The number of long hedge fund positions went up by 8 in recent months. Zendesk Inc (NYSE:ZEN) was in 63 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 61. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZEN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 55 hedge funds in our database with ZEN holdings at the end of March.

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

In the 21st century investor’s toolkit there are a multitude of methods investors can use to evaluate stocks. A duo of the best methods are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the top money managers can outclass the market by a superb margin (see the details here).

Xiniya Earnings Call Transcript XNY 2014 Q3

New York Stock Exchange

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a glance at the latest hedge fund action surrounding Zendesk Inc (NYSE:ZEN).

What have hedge funds been doing with Zendesk Inc (NYSE:ZEN)?

At the end of June, a total of 63 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ZEN over the last 20 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Zendesk Inc (NYSE:ZEN) was held by Whale Rock Capital Management, which reported holding $262.7 million worth of stock at the end of September. It was followed by Cadian Capital with a $242.4 million position. Other investors bullish on the company included Echo Street Capital Management, Polar Capital, and SQN Investors. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to Zendesk Inc (NYSE:ZEN), around 15.97% of its 13F portfolio. Toronado Partners is also relatively very bullish on the stock, earmarking 11.95 percent of its 13F equity portfolio to ZEN.

Consequently, some big names have jumped into Zendesk Inc (NYSE:ZEN) headfirst. North Peak Capital, managed by Michael Kahan and Jeremy Kahan, created the largest position in Zendesk Inc (NYSE:ZEN). North Peak Capital had $72.5 million invested in the company at the end of the quarter. Eashwar Krishnan’s Tybourne Capital Management also initiated a $71 million position during the quarter. The other funds with new positions in the stock are Alok Agrawal’s Bloom Tree Partners, Baker Burleson and Stormy Scott’s Banbury Partners, and Peter Muller’s PDT Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Zendesk Inc (NYSE:ZEN) but similarly valued. These stocks are Bio-Techne Corporation (NASDAQ:TECH), United Airlines Holdings Inc (NASDAQ:UAL), Erie Indemnity Company (NASDAQ:ERIE), Medical Properties Trust, Inc. (NYSE:MPW), Advance Auto Parts, Inc. (NYSE:AAP), NetApp Inc. (NASDAQ:NTAP), and Darden Restaurants, Inc. (NYSE:DRI). This group of stocks’ market values are similar to ZEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TECH 27 278924 1
UAL 38 917094 -3
ERIE 14 42805 -3
MPW 17 162185 1
AAP 47 1507053 9
NTAP 25 465896 -1
DRI 49 1202504 -3
Average 31 653780 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $654 million. That figure was $1579 million in ZEN’s case. Darden Restaurants, Inc. (NYSE:DRI) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Zendesk Inc (NYSE:ZEN) is more popular among hedge funds. Our overall hedge fund sentiment score for ZEN is 90. 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. 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 28.2% in 2020 through August 24th and still beat the market by 20.6 percentage points. Unfortunately ZEN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ZEN were disappointed as the stock returned -2.3% since the end of the second quarter 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 most of these stocks already outperformed the market in 2020.

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