Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Zendesk Inc (NYSE:ZEN).
Is ZEN stock a buy or sell? Prominent investors were becoming less confident. The number of long hedge fund positions fell by 1 lately. Zendesk Inc (NYSE:ZEN) was in 58 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 63. Our calculations also showed that ZEN isn’t 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).
Tim Woolley of Polar Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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. 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 homepage (or at the end of this article). Now let’s take a look at the key hedge fund action encompassing Zendesk Inc (NYSE:ZEN).
Do Hedge Funds Think ZEN Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 61 hedge funds with a bullish position in ZEN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cadian Capital held the most valuable stake in Zendesk Inc (NYSE:ZEN), which was worth $350.2 million at the end of the fourth quarter. On the second spot was Polar Capital which amassed $176.8 million worth of shares. Whale Rock Capital Management, Echo Street Capital Management, and Tiger Global Management LLC were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Toronado Partners allocated the biggest weight to Zendesk Inc (NYSE:ZEN), around 13.66% of its 13F portfolio. Cadian Capital is also relatively very bullish on the stock, setting aside 9 percent of its 13F equity portfolio to ZEN.
Since Zendesk Inc (NYSE:ZEN) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that slashed their entire stakes in the fourth quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, valued at close to $37.8 million in stock. Josh Resnick’s fund, Jericho Capital Asset Management, also dropped its stock, about $31.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds in the fourth quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Zendesk Inc (NYSE:ZEN) but similarly valued. We will take a look at Energy Transfer L.P. (NYSE:ET), HEICO Corporation (NYSE:HEI), Invitation Homes Inc. (NYSE:INVH), FirstEnergy Corp. (NYSE:FE), Monolithic Power Systems, Inc. (NASDAQ:MPWR), The Liberty SiriusXM Group (NASDAQ:LSXMA), and Carnival Corporation & plc (NYSE:CUK). This group of stocks’ market caps match ZEN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ET | 25 | 543271 | -6 |
| HEI | 44 | 786027 | 1 |
| INVH | 27 | 833637 | -1 |
| FE | 50 | 1305329 | -9 |
| MPWR | 30 | 640635 | -7 |
| LSXMA | 42 | 1691626 | 0 |
| CUK | 7 | 116507 | -6 |
| Average | 32.1 | 845290 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.1 hedge funds with bullish positions and the average amount invested in these stocks was $845 million. That figure was $1858 million in ZEN’s case. FirstEnergy Corp. (NYSE:FE) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Zendesk Inc (NYSE:ZEN) is more popular among hedge funds. Our overall hedge fund sentiment score for ZEN is 81.6. 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 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 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Unfortunately ZEN wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZEN were disappointed as the stock returned -9.5% since the end of the fourth quarter (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
Follow Zendesk Inc. (NYSE:ZEN)
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Disclosure: None. This article was originally published at Insider Monkey.
