We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards ServiceNow Inc (NYSE:NOW) and determine whether hedge funds skillfully traded this stock.
Is ServiceNow Inc (NYSE:NOW) a bargain? Investors who are in the know were taking a bearish view. The number of long hedge fund bets were trimmed by 4 in recent months. ServiceNow Inc (NYSE:NOW) was in 87 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 98. Our calculations also showed that NOW ranked 28th among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 91 hedge funds in our database with NOW positions at the end of the second quarter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s review the recent hedge fund action encompassing ServiceNow Inc (NYSE:NOW).
Ole Andreas Halvorsen of Viking Global
Do Hedge Funds Think NOW Is A Good Stock To Buy Now?
At Q3’s end, a total of 87 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in NOW over the last 25 quarters. So, let’s review 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 Tiger Global Management LLC, which reported holding $1372.9 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $1365.2 million position. Other investors bullish on the company included SCGE Management, Citadel Investment Group, and 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 11.54% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, dishing out 8.7 percent of its 13F equity portfolio to NOW.
Due to the fact that ServiceNow Inc (NYSE:NOW) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there were a few money managers that slashed their positions entirely last quarter. Interestingly, Zach Schreiber’s Point State Capital cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth close to $55.8 million in call options, and Noam Gottesman’s GLG Partners was right behind this move, as the fund sold off about $27.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to ServiceNow Inc (NYSE:NOW). These stocks are Sanofi (NASDAQ:SNY), American Tower Corporation (NYSE:AMT), Amgen, Inc. (NASDAQ:AMGN), The Toronto-Dominion Bank (NYSE:TD), Intuitive Surgical, Inc. (NASDAQ:ISRG), Snap Inc. (NYSE:SNAP), and Applied Materials, Inc. (NASDAQ:AMAT). This group of stocks’ market valuations are closest to NOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNY | 19 | 1287779 | 3 |
| AMT | 61 | 4474779 | 6 |
| AMGN | 52 | 1448267 | -1 |
| TD | 17 | 294336 | 0 |
| ISRG | 61 | 3536259 | 1 |
| SNAP | 78 | 6739225 | 14 |
| AMAT | 68 | 4320480 | -5 |
| Average | 50.9 | 3157304 | 2.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.9 hedge funds with bullish positions and the average amount invested in these stocks was $3157 million. That figure was $7528 million in NOW’s case. Snap Inc. (NYSE:SNAP) is the most popular stock in this table. On the other hand The Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks ServiceNow Inc (NYSE:NOW) is more popular among hedge funds. Our overall hedge fund sentiment score for NOW is 77.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, NOW wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NOW were disappointed as the stock returned -5.9% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.
Follow Servicenow Inc. (NYSE:NOW)
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Disclosure: None. This article was originally published at Insider Monkey.
