Were Hedge Funds Right About Piling Into ServiceNow Inc (NOW)?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31st, so let’s proceed with the discussion of the hedge fund sentiment on ServiceNow Inc (NYSE:NOW).

ServiceNow Inc (NYSE:NOW) has experienced an increase in enthusiasm from smart money of late. ServiceNow Inc (NYSE:NOW) was in 96 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 92. This means the bullish number of hedge fund positions in this stock reached a brand new all time high. Our calculations also showed that NOW ranked #25 among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Now let’s view the recent hedge fund action regarding ServiceNow Inc (NYSE:NOW).

Do Hedge Funds Think NOW Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 96 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the third quarter of 2020. By comparison, 75 hedge funds held shares or bullish call options in NOW a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Tiger Global Management LLC, managed by Chase Coleman, holds the number one position in ServiceNow Inc (NYSE:NOW). Tiger Global Management LLC has a $904.4 million position in the stock, comprising 2.3% of its 13F portfolio. Sitting at the No. 2 spot is GQG Partners, led by Rajiv Jain, holding a $881 million position; 3% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish encompass  Lone Pine Capital, Christopher Lyle’s SCGE Management and Andreas Halvorsen’s Viking Global. In terms of the portfolio weights assigned to each position Praesidium Investment Management Company allocated the biggest weight to ServiceNow Inc (NYSE:NOW), around 12% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, dishing out 11.94 percent of its 13F equity portfolio to NOW.

Now, specific money managers have been driving this bullishness. Viking Global, managed by Andreas Halvorsen, assembled the largest position in ServiceNow Inc (NYSE:NOW). Viking Global had $422.8 million invested in the company at the end of the quarter. Michael Sidhom’s Immersion Capital also made a $72.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Josh Resnick’s Jericho Capital Asset Management, James Parsons’s Junto Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s check out hedge fund activity in other stocks similar to ServiceNow Inc (NYSE:NOW). These stocks are HSBC Holdings plc (NYSE:HSBC), Intuit Inc. (NASDAQ:INTU), Toronto-Dominion Bank (NYSE:TD), Sea Limited (NYSE:SE), 3M Company (NYSE:MMM), American Tower Corporation (NYSE:AMT), and The Charles Schwab Corporation (NYSE:SCHW). This group of stocks’ market valuations are closest to NOW’s market valuation.

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As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $3804 million. That figure was $6849 million in NOW’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 14 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 80.6. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately NOW wasn’t nearly as successful as these 30 stocks and hedge funds that were betting on NOW were disappointed as the stock returned -0.2% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the more diversified list of the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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