Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to salesforce.com, inc. (NYSE:CRM) changed recently.
salesforce.com, inc. (NYSE:CRM) was in 93 hedge funds' portfolios at the end of March. CRM has seen a decrease in support from the world's most elite money managers lately. There were 99 hedge funds in our database with CRM positions at the end of the previous quarter. Our calculations also showed that CRM is currently the 15th most popular stock among hedge funds (see the list of 30 most popular stocks among hedge funds).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We're going to take a glance at the latest hedge fund action regarding salesforce.com, inc. (NYSE:CRM).
How are hedge funds trading salesforce.com, inc. (NYSE:CRM)?
At the end of the first quarter, a total of 93 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in CRM over the last 15 quarters. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in salesforce.com, inc. (NYSE:CRM). Fisher Asset Management has a $467.9 million position in the stock, comprising 0.6% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $378.2 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass Chase Coleman's Tiger Global Management LLC, Eashwar Krishnan's Tybourne Capital Management and Stephen Mandel's Lone Pine Capital.
Due to the fact that salesforce.com, inc. (NYSE:CRM) has witnessed a decline in interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedge funds that slashed their positions entirely by the end of the third quarter. Intriguingly, Andreas Halvorsen's Viking Global dropped the biggest investment of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $708.8 million in stock, and Scott Ferguson's Sachem Head Capital was right behind this move, as the fund said goodbye to about $230.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 6 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to salesforce.com, inc. (NYSE:CRM). These stocks are BHP Group (NYSE:BBL), Paypal Holdings Inc (NASDAQ:PYPL), DowDuPont Inc. (NYSE:DWDP), and PetroChina Company Limited (NYSE:PTR). This group of stocks' market values are closest to CRM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBL,21,948033,6 PYPL,93,3610295,-10 DWDP,61,1910098,-6 PTR,12,124953,-2 Average,46.75,1648345,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.75 hedge funds with bullish positions and the average amount invested in these stocks was $1648 million. That figure was $5226 million in CRM's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 12 bullish hedge fund positions. salesforce.com, inc. (NYSE:CRM) 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 10 most popular stocks among hedge funds returned 2.2% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CRM wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CRM were disappointed as the stock returned -1.7% during the same period and underperformed the market by a small margin. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as 7 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.