U.S. Markets closed

Hedge Funds Have Never Been This Bullish On Veeva Systems Inc (VEEV)

Nina Todic

How do we determine whether Veeva Systems Inc (NYSE:VEEV) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Veeva Systems Inc (NYSE:VEEV) was in 35 hedge funds' portfolios at the end of June. VEEV shareholders have witnessed an increase in hedge fund sentiment recently. There were 27 hedge funds in our database with VEEV positions at the end of the previous quarter. Our calculations also showed that VEEV isn't among the 30 most popular stocks among hedge funds.

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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

John Overdeck of Two Sigma

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 key hedge fund action surrounding Veeva Systems Inc (NYSE:VEEV).

How are hedge funds trading Veeva Systems Inc (NYSE:VEEV)?

At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in VEEV a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with VEEV Positions

When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Veeva Systems Inc (NYSE:VEEV). AQR Capital Management has a $311.1 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is D. E. Shaw of D E Shaw, with a $179.4 million position; 0.2% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Renaissance Technologies and John Overdeck and David Siegel's Two Sigma Advisors.

Now, key hedge funds were leading the bulls' herd. Melvin Capital Management, managed by Gabriel Plotkin, established the most outsized position in Veeva Systems Inc (NYSE:VEEV). Melvin Capital Management had $97.3 million invested in the company at the end of the quarter. Nehal Chopra's Ratan Capital Group also initiated a $8.5 million position during the quarter. The other funds with brand new VEEV positions are Matthew Tewksbury's Stevens Capital Management, Larry Chen and Terry Zhang's Tairen Capital, and Michael Gelband's ExodusPoint Capital.

Let's go over hedge fund activity in other stocks similar to Veeva Systems Inc (NYSE:VEEV). These stocks are Cerner Corporation (NASDAQ:CERN), Pioneer Natural Resources Company (NYSE:PXD), Eversource Energy (NYSE:ES), and Verisk Analytics, Inc. (NASDAQ:VRSK). All of these stocks' market caps are closest to VEEV's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CERN,29,1211492,0 PXD,48,841904,-7 ES,21,780262,5 VRSK,30,694067,10 Average,32,881931,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $882 million. That figure was $1355 million in VEEV's case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Eversource Energy (NYSE:ES) is the least popular one with only 21 bullish hedge fund positions. Veeva Systems Inc (NYSE:VEEV) 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 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 VEEV wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VEEV were disappointed as the stock returned -5.8% 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 so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

Related Content