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Was The Smart Money Right About Zendesk Inc (ZEN)?

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·5 min read
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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Zendesk Inc (NYSE:ZEN) in this article.

Zendesk Inc (NYSE:ZEN) has experienced a decrease in support from the world's most elite money managers lately. Zendesk Inc (NYSE:ZEN) was in 58 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 63. Our calculations also showed that ZEN isn't among the 30 most popular stocks among hedge funds (click for Q4 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 124 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.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. Keeping this in mind we're going to take a look at the fresh hedge fund action surrounding Zendesk Inc (NYSE:ZEN).

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

At the end of December, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ZEN over the last 22 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is ZEN A Good Stock To Buy?
Is ZEN A Good Stock To Buy?

The largest stake in Zendesk Inc (NYSE:ZEN) was held by Cadian Capital, which reported holding $350.2 million worth of stock at the end of December. It was followed by Polar Capital with a $176.8 million position. Other investors bullish on the company included Whale Rock Capital Management, Echo Street Capital Management, and Tiger Global Management LLC. In terms of the portfolio weights assigned to each position Toronado Partners allocated the biggest weight to Zendesk Inc (NYSE:ZEN), around 13.66% of its 13F portfolio. Cadian Capital is also relatively very bullish on the stock, setting aside 9 percent of its 13F equity portfolio to ZEN.

Seeing as Zendesk Inc (NYSE:ZEN) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of funds who were dropping their entire stakes in the fourth quarter. At the top of the heap, Anand Parekh's Alyeska Investment Group said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $37.8 million in stock. Josh Resnick's fund, Jericho Capital Asset Management, also cut its stock, about $31.9 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds in the fourth quarter.

Let's also examine hedge fund activity in other stocks similar to Zendesk Inc (NYSE:ZEN). These stocks are Energy Transfer L.P. (NYSE:ET), HEICO Corporation (NYSE:HEI), Invitation Homes Inc. (NYSE:INVH), FirstEnergy Corp. (NYSE:FE), Monolithic Power Systems, Inc. (NASDAQ:MPWR), The Liberty SiriusXM Group (NASDAQ:LSXMA), and Carnival Corporation & plc (NYSE:CUK). This group of stocks' market valuations match ZEN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ET,25,543271,-6 HEI,44,786027,1 INVH,27,833637,-1 FE,50,1305329,-9 MPWR,30,640635,-7 LSXMA,42,1691626,0 CUK,7,116507,-6 Average,32.1,845290,-4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.1 hedge funds with bullish positions and the average amount invested in these stocks was $845 million. That figure was $1858 million in ZEN's case. FirstEnergy Corp. (NYSE:FE) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) 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 overall hedge fund sentiment score for ZEN is 81.6. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately ZEN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ZEN were disappointed as the stock returned 2.1% since the end of the fourth quarter (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most 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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