We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Zendesk Inc (NYSE:ZEN) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Zendesk Inc (NYSE:ZEN) a healthy stock for your portfolio? Hedge funds are taking a bullish view. The number of long hedge fund bets rose by 14 in recent months. Our calculations also showed that ZEN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_256989" align="aligncenter" width="400"] Dmitry Balyasny of Balyasny Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's analyze the key hedge fund action encompassing Zendesk Inc (NYSE:ZEN).
How have hedgies been trading Zendesk Inc (NYSE:ZEN)?
At Q4's end, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ZEN over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Zendesk Inc (NYSE:ZEN) was held by Whale Rock Capital Management, which reported holding $206.3 million worth of stock at the end of September. It was followed by SCGE Management with a $124.1 million position. Other investors bullish on the company included Polar Capital, Echo Street Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Dendur Capital allocated the biggest weight to Zendesk Inc (NYSE:ZEN), around 8.18% of its 13F portfolio. Toronado Partners is also relatively very bullish on the stock, designating 8.17 percent of its 13F equity portfolio to ZEN.
As one would reasonably expect, key hedge funds have jumped into Zendesk Inc (NYSE:ZEN) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in Zendesk Inc (NYSE:ZEN). Balyasny Asset Management had $85.6 million invested in the company at the end of the quarter. Josh Resnick's Jericho Capital Asset Management also made a $69.1 million investment in the stock during the quarter. The following funds were also among the new ZEN investors: Brandon Haley's Holocene Advisors, James Crichton's Hitchwood Capital Management, and Renaissance Technologies.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Zendesk Inc (NYSE:ZEN) but similarly valued. These stocks are Sensata Technologies Holding N.V. (NYSE:ST), News Corp (NASDAQ:NWS), Coty Inc (NYSE:COTY), and Euronet Worldwide, Inc. (NASDAQ:EEFT). This group of stocks' market caps are closest to ZEN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ST,23,1309456,0 NWS,7,31884,-5 COTY,29,346957,4 EEFT,47,410495,11 Average,26.5,524698,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $525 million. That figure was $1843 million in ZEN's case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Zendesk Inc (NYSE:ZEN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately ZEN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ZEN were disappointed as the stock returned -28.6% during the first two and a half months of 2020 (through March 16th) 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.