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Hedge Funds Have Never Been This Bullish On ServiceNow Inc (NOW)

·6 min read

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards ServiceNow Inc (NYSE:NOW) changed recently.

ServiceNow Inc (NYSE:NOW) was in 98 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 96. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. NOW shareholders have witnessed an increase in hedge fund interest in recent months. There were 96 hedge funds in our database with NOW holdings at the end of December. Our calculations also showed that NOW ranked 23rd among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Glen Kacher of Light Street Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell stocks 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. With all of this in mind let's view the new hedge fund action surrounding ServiceNow Inc (NYSE:NOW).

Do Hedge Funds Think NOW Is A Good Stock To Buy Now?

At Q1's end, a total of 98 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in NOW over the last 23 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, Tiger Global Management LLC was the largest shareholder of ServiceNow Inc (NYSE:NOW), with a stake worth $1078.2 million reported as of the end of March. Trailing Tiger Global Management LLC was Lone Pine Capital, which amassed a stake valued at $739.5 million. Viking Global, SCGE Management, and Alkeon Capital Management 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 10.43% of its 13F portfolio. Immersion Capital is also relatively very bullish on the stock, earmarking 7.38 percent of its 13F equity portfolio to NOW.

Consequently, key hedge funds have been driving this bullishness. Stockbridge Partners, managed by Sharlyn C. Heslam, created the largest position in ServiceNow Inc (NYSE:NOW). Stockbridge Partners had $106.2 million invested in the company at the end of the quarter. Joseph Samuels's Islet Management also made a $75 million investment in the stock during the quarter. The following funds were also among the new NOW investors: Renaissance Technologies, Glen Kacher's Light Street Capital, and Robert Boucai's Newbrook Capital Advisors.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as ServiceNow Inc (NYSE:NOW) but similarly valued. These stocks are Diageo plc (NYSE:DEO), Booking Holdings Inc. (NASDAQ:BKNG), Advanced Micro Devices, Inc. (NASDAQ:AMD), Altria Group Inc (NYSE:MO), Zoom Video Communications, Inc. (NASDAQ:ZM), Stryker Corporation (NYSE:SYK), and GlaxoSmithKline plc (NYSE:GSK). All of these stocks' market caps are closest to NOW's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DEO,22,724467,-1 BKNG,103,6810305,-5 AMD,62,3703315,-12 MO,38,1109493,1 ZM,54,5672277,-5 SYK,46,3154010,2 GSK,25,1359731,-5 Average,50,3219085,-3.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $3219 million. That figure was $6128 million in NOW's case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 22 bullish hedge fund positions. ServiceNow Inc (NYSE:NOW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NOW is 83.9. 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. 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 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 gained 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately NOW wasn't nearly as popular as these 5 stocks and hedge funds that were betting on NOW were disappointed as the stock returned -0.4% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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