Is ServiceNow Inc (NYSE:NOW) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
ServiceNow Inc (NYSE:NOW) shareholders have witnessed a decrease in enthusiasm from smart money recently. ServiceNow Inc (NYSE:NOW) was in 91 hedge funds’ portfolios at the end of June. The all time high for this statistic is 98. There were 98 hedge funds in our database with NOW holdings at the end of March. Our calculations also showed that NOW ranked 24th among the 30 most popular stocks among hedge funds (click for Q2 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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Andreas Halvorsen of Viking Global
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy 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. 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. Keeping this in mind we’re going to take a gander at the fresh hedge fund action encompassing ServiceNow Inc (NYSE:NOW).
Do Hedge Funds Think NOW Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 91 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NOW over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Lone Pine Capital held the most valuable stake in ServiceNow Inc (NYSE:NOW), which was worth $1356.7 million at the end of the second quarter. On the second spot was Tiger Global Management LLC which amassed $1212.4 million worth of shares. Viking Global, SCGE Management, and Citadel Investment Group 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 Praesidium Investment Management Company allocated the biggest weight to ServiceNow Inc (NYSE:NOW), around 9.96% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, earmarking 8.07 percent of its 13F equity portfolio to NOW.
Since ServiceNow Inc (NYSE:NOW) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies who sold off their full holdings by the end of the second quarter. At the top of the heap, Josh Resnick’s Jericho Capital Asset Management dropped the biggest stake of the 750 funds monitored by Insider Monkey, worth about $109.1 million in stock, and Renaissance Technologies was right behind this move, as the fund sold off about $55.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 7 funds by the end of the second quarter.
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 Snap Inc. (NYSE:SNAP), Lockheed Martin Corporation (NYSE:LMT), GlaxoSmithKline plc (NYSE:GSK), S&P Global Inc. (NYSE:SPGI), Stryker Corporation (NYSE:SYK), Micron Technology, Inc. (NASDAQ:MU), and Moderna, Inc. (NASDAQ:MRNA). 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 |
|---|---|---|---|
| SNAP | 64 | 5399955 | -9 |
| LMT | 58 | 1565723 | 8 |
| GSK | 28 | 1466364 | 3 |
| SPGI | 71 | 7278360 | 5 |
| SYK | 48 | 3369193 | 2 |
| MU | 87 | 6333058 | -13 |
| MRNA | 37 | 5754554 | -2 |
| Average | 56.1 | 4452458 | -0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 56.1 hedge funds with bullish positions and the average amount invested in these stocks was $4452 million. That figure was $7011 million in NOW’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (NYSE:GSK) is the least popular one with only 28 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 75.9. 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 returned 26.3% in 2021 through October 29th but still managed to beat the market by 2.3 percentage points. Hedge funds were also right about betting on NOW as the stock returned 27% since the end of June (through 10/29) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
