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Is ServiceNow Inc (NOW) Going to Burn These Hedge Funds?

Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about ServiceNow Inc (NYSE:NOW).

ServiceNow Inc was in 26 hedge funds’ portfolios at the end of September. NOW investors should pay attention to a decrease in support from the world’s most elite money managers of late. There were 30 hedge funds in our database with NOW holdings at the end of the previous quarter. At the end of this article we will also compare NOW to other stocks including Signet Jewelers Ltd. (NYSE:SIG), Continental Resources, Inc. (NYSE:CLR), and Rockwell Collins, Inc. (NYSE:COL) to get a better sense of its popularity.

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With all of this in mind, let’s take a look at the recent action surrounding ServiceNow Inc (NYSE:NOW).

What have hedge funds been doing with ServiceNow Inc (NYSE:NOW)?

Heading into Q4, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Criterion Capital, managed by Christopher Lord, holds the largest position in ServiceNow Inc (NYSE:NOW). Criterion Capital has a $194.8 million position in the stock, comprising 6.6% of its 13F portfolio. The second most bullish fund is Columbus Circle Investors, with a $163.6 million position; 1.3% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism include Christopher James’s Partner Fund Management, Robert Pitts’s Steadfast Capital Management and Matthew Hulsizer’s PEAK6 Capital Management.

Since ServiceNow Inc (NYSE:NOW) has witnessed falling interest from the smart money, it’s easy to see that there lies a certain “tier” of money managers that decided to sell off their full holdings last quarter. It’s worth mentioning that Frank Slattery’s Symmetry Peak Management said goodbye to the largest investment of the 700 funds watched by Insider Monkey, comprising about $4.7 million in stock, and Millennium Management Subsidiary’s Green Arrow Capital Management was right behind this move, as the fund dumped about $1.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ServiceNow Inc (NYSE:NOW) but similarly valued. We will take a look at Signet Jewelers Ltd. (NYSE:SIG), Continental Resources, Inc. (NYSE:CLR), Rockwell Collins, Inc. (NYSE:COL), and D.R. Horton, Inc. (NYSE:DHI). This group of stocks’ market valuations match NOW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SIG 47 3147282 -2
CLR 34 448310 -8
COL 17 190702 -3
DHI 40 1299030 -2

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $1,271 million. That figure was $617 million in NOW’s case. Signet Jewelers Ltd. (NYSE:SIG) is the most popular stock in this table. On the other hand Rockwell Collins, Inc. (NYSE:COL) is the least popular one with only 17 bullish hedge fund positions. ServiceNow Inc (NYSE:NOW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SIG might be a better candidate to consider a long position.

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