Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Zendesk Inc (NYSE:ZEN).
Is ZEN a good stock to buy now? Zendesk Inc (NYSE:ZEN) shareholders have witnessed a decrease in hedge fund sentiment lately. Zendesk Inc (NYSE:ZEN) was in 59 hedge funds' portfolios at the end of September. The all time high for this statistics is 63. Our calculations also showed that ZEN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
At the moment there are a multitude of metrics stock traders put to use to analyze publicly traded companies. A pair of the less utilized metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best money managers can outclass the S&P 500 by a solid margin (see the details here).
Alex Sacerdote of Whale Rock Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. Now we're going to take a look at the key hedge fund action regarding Zendesk Inc (NYSE:ZEN).
Hedge fund activity in Zendesk Inc (NYSE:ZEN)
Heading into the fourth quarter of 2020, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ZEN over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Eric Bannasch's Cadian Capital has the most valuable position in Zendesk Inc (NYSE:ZEN), worth close to $260.4 million, corresponding to 8.5% of its total 13F portfolio. Coming in second is Whale Rock Capital Management, led by Alex Sacerdote, holding a $255.7 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Brian Ashford-Russell and Tim Woolley's Polar Capital, Greg Poole's Echo Street Capital Management and Chase Coleman's 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 12.4% of its 13F portfolio. Banbury Partners is also relatively very bullish on the stock, setting aside 8.87 percent of its 13F equity portfolio to ZEN.
Seeing as Zendesk Inc (NYSE:ZEN) has faced bearish sentiment from hedge fund managers, we can see that there was a specific group of money managers that elected to cut their full holdings heading into Q4. Intriguingly, Amish Mehta's SQN Investors sold off the largest position of all the hedgies watched by Insider Monkey, worth an estimated $92.9 million in stock. Michael Kahan and Jeremy Kahan's fund, North Peak Capital, also cut its stock, about $72.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 4 funds heading into Q4.
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 Arch Capital Group Ltd. (NASDAQ:ACGL), M&T Bank Corporation (NYSE:MTB), Atmos Energy Corporation (NYSE:ATO), Wabtec Corporation (NYSE:WAB), Live Nation Entertainment, Inc. (NYSE:LYV), Pembina Pipeline Corp (NYSE:PBA), and Cheniere Energy, Inc. (NYSE:LNG). This group of stocks' market caps resemble ZEN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACGL,41,1229443,5 MTB,35,503738,5 ATO,18,110743,-4 WAB,38,1732099,-1 LYV,50,1716514,6 PBA,12,56123,2 LNG,40,1971024,2 Average,33.4,1045669,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $1046 million. That figure was $1680 million in ZEN's case. Live Nation Entertainment, Inc. (NYSE:LYV) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 12 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 79.1. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on ZEN as the stock returned 28.6% since the end of September (through 12/2) 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.