Is Cornerstone OnDemand, Inc. (CSOD) A Good Stock To Buy?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Cornerstone OnDemand, Inc. (NASDAQ:CSOD) in this article.

Is Cornerstone OnDemand, Inc. (NASDAQ:CSOD) undervalued? Investors who are in the know are in an optimistic mood. The number of long hedge fund bets improved by 7 in recent months. Our calculations also showed that CSOD isn’t 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).

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 41 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.

Kevin Oram Praesidium Investment Management

Kevin Oram of Praesidium Investment Management Company

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s take a glance at the latest hedge fund action encompassing Cornerstone OnDemand, Inc. (NASDAQ:CSOD).

What have hedge funds been doing with Cornerstone OnDemand, Inc. (NASDAQ:CSOD)?

At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from the previous quarter. On the other hand, there were a total of 31 hedge funds with a bullish position in CSOD a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Praesidium Investment Management Company, managed by Kevin Oram and Peter Uddo, holds the number one position in Cornerstone OnDemand, Inc. (NASDAQ:CSOD). Praesidium Investment Management Company has a $178.9 million position in the stock, comprising 11.1% of its 13F portfolio. The second largest stake is held by Ricky Sandler of Eminence Capital, with a $131.1 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions encompass Robert G. Moses’s RGM Capital, Ken Griffin’s Citadel Investment Group and Douglas Dossey and Arthur Young’s Tensile Capital. In terms of the portfolio weights assigned to each position Praesidium Investment Management Company allocated the biggest weight to Cornerstone OnDemand, Inc. (NASDAQ:CSOD), around 11.06% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, setting aside 8.03 percent of its 13F equity portfolio to CSOD.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Blue Harbour Group, managed by Clifton S. Robbins, created the most valuable position in Cornerstone OnDemand, Inc. (NASDAQ:CSOD). Blue Harbour Group had $12.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $6.8 million investment in the stock during the quarter. The other funds with brand new CSOD positions are Jack Ripsteen’s Potrero Capital Research, Paul Tudor Jones’s Tudor Investment Corp, and Benjamin A. Smith’s Laurion Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Cornerstone OnDemand, Inc. (NASDAQ:CSOD). We will take a look at Simpson Manufacturing Co, Inc. (NYSE:SSD), White Mountains Insurance Group Ltd (NYSE:WTM), BlackBerry Limited (NYSE:BB), and Liberty Latin America Ltd. (NASDAQ:LILAK). This group of stocks’ market valuations match CSOD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SSD 24 284021 9
WTM 16 163990 -1
BB 27 470870 -3
LILAK 21 443479 -1
Average 22 340590 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $341 million. That figure was $726 million in CSOD’s case. BlackBerry Limited (NYSE:BB) is the most popular stock in this table. On the other hand White Mountains Insurance Group Ltd (NYSE:WTM) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately CSOD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CSOD were disappointed as the stock returned -51.2% during the first two and a half months of 2020 (through March 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.