Workday Inc (WDAY): Are Hedge Funds Right About This Stock?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Workday Inc (NYSE:WDAY).

Is Workday Inc (NYSE:WDAY) a buy, sell, or hold? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets went up by 4 in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Credicorp Ltd. (USA) (NYSE:BAP), Parker-Hannifin Corporation (NYSE:PH), and Entergy Corporation (NYSE:ETR) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s take a look at the recent action encompassing Workday Inc (NYSE:WDAY).

What does the smart money think about Workday Inc (NYSE:WDAY)?

At Q3’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a rise of 16% from the second quarter of 2016. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Matrix Capital Management, managed by David Goel and Paul Ferri, holds the number one position in Workday Inc (NYSE:WDAY). Matrix Capital Management has a $468.6 million position in the stock, comprising 19.7% of its 13F portfolio. Coming in second is Tybourne Capital Management, led by Eashwar Krishnan, holding a $220 million position; the fund has 11% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass Christopher Lord’s Criterion Capital, and John Overdeck and David Siegel’s Two Sigma Advisors.

As one would reasonably expect, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, created the most outsized position in Workday Inc (NYSE:WDAY). Millennium Management had $33.7 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also initiated a $22 million position during the quarter. The following funds were also among the new WDAY investors: Ken Griffin’s Citadel Investment Group, Solomon Kumin’s Folger Hill Asset Management, and Peter Muller’s PDT Partners.

Let’s also examine hedge fund activity in other stocks similar to Workday Inc (NYSE:WDAY). These stocks are Credicorp Ltd. (USA) (NYSE:BAP), Parker-Hannifin Corporation (NYSE:PH), Entergy Corporation (NYSE:ETR), and DENTSPLY International Inc. (NASDAQ:XRAY). All of these stocks’ market caps are closest to WDAY’s market cap.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $992 million. That figure was $1.41 billion in WDAY’s case. DENTSPLY International Inc. (NASDAQ:XRAY) is the most popular stock in this table. On the other hand Credicorp Ltd. (USA) (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. Workday Inc (NYSE:WDAY) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard XRAY might be a better candidate to consider a long position.

Disclosure: None