There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze ServiceNow Inc (NYSE:NOW).
ServiceNow Inc (NYSE:NOW) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 31 hedge funds’ portfolios at the end of the third quarter of 2016. At the end of this article we will also compare NOW to other stocks including AMETEK, Inc. (NYSE:AME), Regions Financial Corporation (NYSE:RF), and Dover Corp (NYSE:DOV) to get a better sense of its popularity.
Follow Servicenow Inc. (NYSE:NOW)
Follow Servicenow Inc. (NYSE:NOW)
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.
What have hedge funds been doing with ServiceNow Inc (NYSE:NOW)?
At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in ServiceNow Inc (NYSE:NOW), worth close to $218 million. The second largest stake is held by Criterion Capital, led by Christopher Lord, holding a $198.6 million position; the fund has 7.9% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Karthik Sarma’s SRS Investment Management, Christopher James’ Partner Fund Management and Josh Resnick’s Jericho Capital Asset Management.
Because ServiceNow Inc (NYSE:NOW) has witnessed flat interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of fund managers who sold off their full holdings heading into Q4. At the top of the heap, John Burbank’s Passport Capital sold off the biggest position of all the hedgies watched by Insider Monkey, worth about $16.6 million in stock. Jim Simons’ fund, Renaissance Technologies, also dropped its stock, about $7.9 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out 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 AMETEK, Inc. (NYSE:AME), Regions Financial Corporation (NYSE:RF), Dover Corp (NYSE:DOV), and AEGON N.V. (ADR) (NYSE:AEG). This group of stocks’ market valuations are similar to NOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AME | 29 | 1054365 | 4 |
| RF | 34 | 823572 | -5 |
| DOV | 28 | 827780 | 6 |
| AEG | 8 | 11293 | 4 |
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $679 million. That figure was $982 million in NOW’s case. Regions Financial Corporation (NYSE:RF) is the most popular stock in this table. On the other hand AEGON N.V. (ADR) (NYSE:AEG) is the least popular one with only 8 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RF might be a better candidate to consider a long position in.
Disclosure: None
