Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about Workday Inc (NYSE:WDAY)?
Is Workday Inc (NYSE:WDAY) a healthy stock for your portfolio? Hedge funds are reducing their bets on the stock. The number of bullish hedge fund bets were trimmed by 2 recently. Our calculations also showed that WDAY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). WDAY was in 39 hedge funds’ portfolios at the end of the third quarter of 2019. There were 41 hedge funds in our database with WDAY positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the fresh hedge fund action surrounding Workday Inc (NYSE:WDAY).
How are hedge funds trading Workday Inc (NYSE:WDAY)?
Heading into the fourth quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WDAY over the last 17 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Workday Inc (NYSE:WDAY) was held by Bares Capital Management, which reported holding $348.1 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $213.8 million position. Other investors bullish on the company included Whale Rock Capital Management, Duquesne Capital, and Matrix Capital Management. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to Workday Inc (NYSE:WDAY), around 17% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, designating 10.45 percent of its 13F equity portfolio to WDAY.
Because Workday Inc (NYSE:WDAY) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds who sold off their full holdings last quarter. At the top of the heap, Rajiv Jain’s GQG Partners sold off the largest investment of the 750 funds watched by Insider Monkey, comprising about $189.3 million in stock. Gabriel Plotkin’s fund, Melvin Capital Management, also sold off its stock, about $87.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Workday Inc (NYSE:WDAY) but similarly valued. We will take a look at Moody’s Corporation (NYSE:MCO), AFLAC Incorporated (NYSE:AFL), Travelers Companies Inc (NYSE:TRV), and Ferrari N.V. (NYSE:RACE). This group of stocks’ market valuations are similar to WDAY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MCO | 48 | 7835478 | 9 |
| AFL | 27 | 528066 | 4 |
| TRV | 34 | 1514479 | 8 |
| RACE | 32 | 1530799 | 2 |
| Average | 35.25 | 2852206 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $2852 million. That figure was $1240 million in WDAY’s case. Moody’s Corporation (NYSE:MCO) is the most popular stock in this table. On the other hand AFLAC Incorporated (NYSE:AFL) is the least popular one with only 27 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately WDAY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WDAY were disappointed as the stock returned 3.7% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
