Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will 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 nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the 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).
Is ServiceNow Inc (NYSE:NOW) a good stock to buy now? SNOW investors should be aware of a decrease in support from the world’s most elite money managers lately. ServiceNow Inc (NYSE:NOW) was in 82 hedge funds’ portfolios at the end of September. The all time high for this statistics is 92. There were 86 hedge funds in our database with NOW positions at the end of the second quarter. Our calculations also showed that NOW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Today there are dozens of indicators stock traders put to use to assess their holdings. Some of the most innovative indicators are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top money managers can trounce the S&P 500 by a very impressive amount (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to analyze the key hedge fund action surrounding ServiceNow Inc (NYSE:NOW).
What have hedge funds been doing with ServiceNow Inc (NYSE:NOW)?
At the end of the third quarter, a total of 82 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in NOW over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ServiceNow Inc (NYSE:NOW) was held by Lone Pine Capital, which reported holding $858.9 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $722.1 million position. Other investors bullish on the company included Melvin Capital Management, GQG Partners, and SCGE Management. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to ServiceNow Inc (NYSE:NOW), around 12.64% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, designating 12.55 percent of its 13F equity portfolio to NOW.
Since ServiceNow Inc (NYSE:NOW) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that elected to cut their positions entirely last quarter. Intriguingly, Sander Gerber’s Hudson Bay Capital Management dumped the largest stake of all the hedgies tracked by Insider Monkey, valued at an estimated $384.1 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $210.1 million worth. These transactions are intriguing to say the least, 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 3M Company (NYSE:MMM), HDFC Bank Limited (NYSE:HDB), Fidelity National Information Services Inc. (NYSE:FIS), TOTAL S.A. (NYSE:TOT), Citigroup Inc. (NYSE:C), Pinduoduo Inc. (NASDAQ:PDD), and Raytheon Technologies Corp (NYSE:RTX). This group of stocks’ market values match NOW’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.7 hedge funds with bullish positions and the average amount invested in these stocks was $3416 million. That figure was $5945 million in NOW’s case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand TOTAL S.A. (NYSE:TOT) is the least popular one with only 18 bullish hedge fund positions. ServiceNow Inc (NYSE:NOW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NOW is 71.6. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on NOW, though not to the same extent, as the stock returned 8.8% since Q3 (through November 27th) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.