Is ServiceNow Inc (NOW) A Good Stock To Buy?

Reymerlyn Martin

Updated Sun, Dec 9, 2018, 7:07 PM

Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about ServiceNow Inc (NYSE:NOW).

Is ServiceNow Inc (NYSE:NOW) a healthy stock for your portfolio? Investors who are in the know are getting more optimistic. The number of long hedge fund positions improved by 19 recently. Our calculations also showed that NOW isn't among the 30 most popular stocks among hedge funds.

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' large-cap stock picks indeed failed to the beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lone Pine Capital 2015 Q2 Investor Letter

Let's take a peek at the recent hedge fund action surrounding ServiceNow Inc (NYSE:NOW).

How are hedge funds trading ServiceNow Inc (NYSE:NOW)?

At the end of the third quarter, a total of 65 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 41% from the second quarter of 2018. The graph below displays the number of hedge funds with a bullish position in NOW over the last 13 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 ServiceNow Inc (NYSE:NOW) was held by Lone Pine Capital, which reported holding $619.5 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $321.8 million position. Other investors bullish on the company included Coatue Management, Two Sigma Advisors, and Point State Capital.

As one would reasonably expect, some big names were breaking ground themselves. Whale Rock Capital Management, managed by Alex Sacerdote, created the largest position in ServiceNow Inc (NYSE:NOW). Whale Rock Capital Management had $121 million invested in the company at the end of the quarter. James Crichton's Hitchwood Capital Management also initiated a $117.4 million position during the quarter. The following funds were also among the new NOW investors: Jacob Doft's Highline Capital Management, Brandon Haley's Holocene Advisors, and Robert G. Moses's RGM Capital.

Let's check out hedge fund activity in other stocks similar to ServiceNow Inc (NYSE:NOW). We will take a look at The Travelers Companies Inc (NYSE:TRV), Anadarko Petroleum Corporation (NYSE:APC), Equinix, Inc. (REIT) (NASDAQ:EQIX), and Analog Devices, Inc. (NASDAQ:ADI). This group of stocks' market values are closest to NOW's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRV,26,1195022,-2 APC,45,2097229,-3 EQIX,41,2263056,4 ADI,28,2930807,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $2122 million. That figure was $3610 million in NOW's case. Anadarko Petroleum Corporation (NYSE:APC) is the most popular stock in this table. On the other hand Travelers Companies Inc (NYSE:TRV) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks ServiceNow Inc (NYSE:NOW) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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