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Is Cornerstone OnDemand, Inc. (CSOD) Going to Burn These Hedge Funds?

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Cornerstone OnDemand, Inc. (NASDAQ:CSOD).

Cornerstone OnDemand, Inc. (NASDAQ:CSOD) investors should pay attention to a decrease in hedge fund interest in recent months. CSOD was in 27 hedge funds' portfolios at the end of the second quarter of 2019. There were 29 hedge funds in our database with CSOD positions at the end of the previous quarter. Our calculations also showed that CSOD isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Kevin Oram Praesidium Investment Management

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the fresh hedge fund action surrounding Cornerstone OnDemand, Inc. (NASDAQ:CSOD).

How are hedge funds trading Cornerstone OnDemand, Inc. (NASDAQ:CSOD)?

At Q2's end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CSOD over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CSOD Positions

Among these funds, Praesidium Investment Management Company held the most valuable stake in Cornerstone OnDemand, Inc. (NASDAQ:CSOD), which was worth $187.8 million at the end of the second quarter. On the second spot was RGM Capital which amassed $109.1 million worth of shares. Moreover, Citadel Investment Group, Tensile Capital, and GLG Partners were also bullish on Cornerstone OnDemand, Inc. (NASDAQ:CSOD), allocating a large percentage of their portfolios to this stock.

Due to the fact that Cornerstone OnDemand, Inc. (NASDAQ:CSOD) has witnessed a decline in interest from the smart money, logic holds that there is a sect of hedge funds who were dropping their full holdings in the second quarter. Interestingly, Seth Wunder's Black-and-White Capital dropped the largest stake of the 750 funds monitored by Insider Monkey, totaling about $3.3 million in stock. Josh Goldberg's fund, G2 Investment Partners Management, also sold off its stock, about $3.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds in the second quarter.

Let's go over hedge fund activity in other stocks similar to Cornerstone OnDemand, Inc. (NASDAQ:CSOD). These stocks are Two Harbors Investment Corp (NYSE:TWO), Qualys Inc (NASDAQ:QLYS), Associated Banc-Corp (NYSE:ASB), and Navistar International Corporation (NYSE:NAV). This group of stocks' market values resemble CSOD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWO,13,41880,-5 QLYS,17,134679,3 ASB,19,204043,3 NAV,26,1425899,3 Average,18.75,451625,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $452 million. That figure was $661 million in CSOD's case. Navistar International Corporation (NYSE:NAV) is the most popular stock in this table. On the other hand Two Harbors Investment Corp (NYSE:TWO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CSOD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CSOD were disappointed as the stock returned -5.4% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

Disclosure: None. This article was originally published at Insider Monkey.

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