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Hedge Funds Piled Into ServiceNow Inc (NOW) During The Crash

Abigail Fisher

In this article we will check out the progression of hedge fund sentiment towards ServiceNow Inc (NYSE:NOW) and determine whether it 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 ServiceNow Inc (NYSE:NOW) a buy right now? The best stock pickers are buying. The number of bullish hedge fund bets inched up by 10 recently. Our calculations also showed that NOW isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). NOW was in 85 hedge funds' portfolios at the end of March. There were 75 hedge funds in our database with NOW positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are tons of metrics investors put to use to assess their holdings. A couple of the less known metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can outpace the market by a significant amount (see the details here).

[caption id="attachment_670980" align="aligncenter" width="399"] Gabriel Plotkin of Melvin Capital Management[/caption]

Gabriel Plotkin Melvin Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea.  For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 we're going to go over the fresh hedge fund action regarding ServiceNow Inc (NYSE:NOW).

What have hedge funds been doing with ServiceNow Inc (NYSE:NOW)?

Heading into the second quarter of 2020, a total of 85 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in NOW over the last 18 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in ServiceNow Inc (NYSE:NOW) was held by Lone Pine Capital, which reported holding $392.2 million worth of stock at the end of September. It was followed by GQG Partners with a $363.1 million position. Other investors bullish on the company included Tybourne Capital Management, Melvin Capital Management, and Whale Rock Capital Management. In terms of the portfolio weights assigned to each position 3G Capital allocated the biggest weight to ServiceNow Inc (NYSE:NOW), around 16.62% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, dishing out 16.57 percent of its 13F equity portfolio to NOW.

As industrywide interest jumped, some big names have jumped into ServiceNow Inc (NYSE:NOW) headfirst. GQG Partners, managed by Rajiv Jain, created the most valuable position in ServiceNow Inc (NYSE:NOW). GQG Partners had $363.1 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $125.2 million position during the quarter. The other funds with brand new NOW positions are  Renaissance Technologies, Amish Mehta's SQN Investors, and Richard Gerson and Navroz D. Udwadia's Falcon Edge Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ServiceNow Inc (NYSE:NOW) but similarly valued. We will take a look at Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Equinix, Inc. (REIT) (NASDAQ:EQIX), Advanced Micro Devices, Inc. (NASDAQ:AMD), and The Goldman Sachs Group, Inc. (NYSE:GS). All of these stocks' market caps match NOW's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position REGN,42,838224,5 EQIX,55,1950326,12 AMD,62,2087092,9 GS,74,3084948,-1 Average,58.25,1990148,6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.25 hedge funds with bullish positions and the average amount invested in these stocks was $1990 million. That figure was $3986 million in NOW's case. The Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is the least popular one with only 42 bullish hedge fund positions. Compared to these stocks ServiceNow Inc (NYSE:NOW) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on NOW as the stock returned 35.4% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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