In this article we will take a look at whether hedge funds think ServiceNow Inc (NYSE:NOW) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
ServiceNow Inc (NYSE:NOW) was in 86 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 92. NOW shareholders have witnessed an increase in hedge fund interest recently. There were 85 hedge funds in our database with NOW positions at the end of the first quarter. Our calculations also showed that NOW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Rajiv Jain of GQG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to go over the latest hedge fund action encompassing ServiceNow Inc (NYSE:NOW).
What does smart money think about ServiceNow Inc (NYSE:NOW)?
Heading into the third quarter of 2020, a total of 86 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 1% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NOW over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Lone Pine Capital was the largest shareholder of ServiceNow Inc (NYSE:NOW), with a stake worth $724.7 million reported as of the end of September. Trailing Lone Pine Capital was Melvin Capital Management, which amassed a stake valued at $340.8 million. SCGE Management, Tiger Global Management LLC, and GQG Partners 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 12.05% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, setting aside 10.71 percent of its 13F equity portfolio to NOW.
As industrywide interest jumped, key money managers were breaking ground themselves. Tiger Eye Capital, managed by Ben Gambill, created the most outsized position in ServiceNow Inc (NYSE:NOW). Tiger Eye Capital had $20.2 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also initiated a $15.9 million position during the quarter. The other funds with brand new NOW positions are McKinley Capital Management, Blair Baker’s Precept Capital Management, and Larry Chen and Terry Zhang’s Tairen Capital.
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 American Express Company (NYSE:AXP), Morgan Stanley (NYSE:MS), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Mondelez International Inc (NASDAQ:MDLZ), Altria Group Inc (NYSE:MO), and Zoom Video Communications, Inc. (NASDAQ:ZM). This group of stocks’ market caps match NOW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXP | 54 | 17635296 | -3 |
| MS | 61 | 4357171 | -9 |
| VRTX | 54 | 3477688 | -2 |
| KOF | 5 | 358015 | -2 |
| MDLZ | 54 | 2594722 | 0 |
| MO | 43 | 1289543 | -3 |
| ZM | 48 | 6758811 | 1 |
| Average | 45.6 | 5210178 | -2.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.6 hedge funds with bullish positions and the average amount invested in these stocks was $5210 million. That figure was $4950 million in NOW’s case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 5 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 84. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on NOW as the stock returned 29.6% since the end of June (through 10/16) 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.
