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Was The Smart Money Right About Workday Inc (WDAY)?

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  • WDAY

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Workday Inc (NYSE:WDAY).

Workday Inc (NYSE:WDAY) has seen an increase in support from the world's most elite money managers of late. Workday Inc (NYSE:WDAY) was in 72 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 80. There were 69 hedge funds in our database with WDAY holdings at the end of March. Our calculations also showed that WDAY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 79 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 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV 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. Now we're going to take a look at the key hedge fund action surrounding Workday Inc (NYSE:WDAY).

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

Heading into the third quarter of 2021, a total of 72 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. By comparison, 73 hedge funds held shares or bullish call options in WDAY a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is WDAY A Good Stock To Buy?
Is WDAY A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Tiger Global Management LLC, managed by Chase Coleman, holds the largest position in Workday Inc (NYSE:WDAY). Tiger Global Management LLC has a $985.4 million position in the stock, comprising 1.8% of its 13F portfolio. On Tiger Global Management LLC's heels is Lone Pine Capital, holding a $818.2 million position; 2.6% of its 13F portfolio is allocated to the company. Other peers with similar optimism consist of Brian Bares's Bares Capital Management, Jaime Sterne's Skye Global Management and Daniel S. Och's OZ Management. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to Workday Inc (NYSE:WDAY), around 13.31% of its 13F portfolio. ROAM Global Management is also relatively very bullish on the stock, dishing out 12.02 percent of its 13F equity portfolio to WDAY.

As aggregate interest increased, key hedge funds were leading the bulls' herd. OZ Management, managed by Daniel S. Och, established the most outsized call position in Workday Inc (NYSE:WDAY). OZ Management had $271.4 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman's Palestra Capital Management also made a $151.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Anand Parekh's Alyeska Investment Group, Zach Schreiber's Point State Capital, and Renaissance Technologies.

Let's go over hedge fund activity in other stocks similar to Workday Inc (NYSE:WDAY). These stocks are Itau Unibanco Holding SA (NYSE:ITUB), Ecolab Inc. (NYSE:ECL), Northrop Grumman Corporation (NYSE:NOC), DoorDash, Inc. (NYSE:DASH), Emerson Electric Co. (NYSE:EMR), The Progressive Corporation (NYSE:PGR), and Humana Inc (NYSE:HUM). This group of stocks' market values are similar to WDAY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ITUB,16,431689,4 ECL,48,2773469,6 NOC,42,1053366,2 DASH,45,8924479,7 EMR,45,854279,0 PGR,44,1338423,-1 HUM,59,3257015,6 Average,42.7,2661817,3.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.7 hedge funds with bullish positions and the average amount invested in these stocks was $2662 million. That figure was $5187 million in WDAY's case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Itau Unibanco Holding SA (NYSE:ITUB) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Workday Inc (NYSE:WDAY) is more popular among hedge funds. Our overall hedge fund sentiment score for WDAY is 85. 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. 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 returned 26.3% in 2021 through October 29th but still managed to beat the market by 2.3 percentage points. Hedge funds were also right about betting on WDAY as the stock returned 21.5% since the end of June (through 10/29) 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.

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