Many leading fund managers -- including guru John Griffin of Blue Ridge Capital; mega fund managers' Fidelity, Capital Group, BlackRock and T. Rowe Price; and tech sector-focused Brown Capital Management -- filed forms 13D and 13G with the SEC in the last week, indicating that they had amended their ownership in U.S. exchange-traded healthcare and technology sector companies. The 13-D/G reports are statements of significant ownership of more than 5% of the voting class of a company's securities, and they are also important due to their timeliness. While 13F filings are quarterly, and are required to be reported within 45 days after the end of the quarter, 13D/Gs are required to be filed within 10 days of the underlying transaction. Furthermore, 13D/Gs are often a precursor to a hostile takeover, company breakup or other "change of control" events, and will often include a letter to management explaining the reason for their taking a large stake in the company -- thereby giving more insight into the transaction.
Mega fund manager T. Rowe Price, with $542 billion in assets under management, filed SEC form SC 13G/A on May 10 indicating that it holds 13.43 million shares of ServiceNow Inc. (NOW), adding 5.50 million shares to the 7.93 million shares that it reported holding at the end of the latest available Q4 2012 quarter. NOW has been a favorite with leading fund managers lately, and in the latest quarter for which collective or consensus picks data is available (Q4 2012), both legendary or guru and the world's largest or mega fund managers accumulated the stock. Specifically, guru fund managers added a net 0.27 million shares to their 0.09 million share prior quarter position in the stock, and mega fund managers added a whopping 21.61 million shares to their 7.79 million share prior quarter position in the stock.
NOW shares got a strong GuruRank of 4.3 and a perfect 5.0 MegaRank, based on leading fund manager activity in Q4 2012. Perhaps validating the confidence of these leading fund managers in the stock, NOW shares have rallied up a strong 30%-plus in the three-month since consensus picks' data were available in mid- to late February, currently trading near all-time highs. Both GuruRank and MegaRank are based on proprietary and relative ranking systems that numerically represent on a scale of one to five the attractiveness of the stock to guru and mega fund managers, respectively, based on their holdings, change in holdings, percent of outstanding shares, and number of leading funds in the stock, as compared to the rest of the 5,200+ stocks in our database.
San Diego, Calif.-based ServiceNow develops cloud-based enterprise IT automation software and services for workflow automation, data consolidation and business process administration. In its latest March quarter that it issued at the end of April, the company beat analyst revenue and earnings estimates, reporting a loss of one cent vs. analyst estimates of a three-cent loss, and revenues at $85.9 million above the $82.1 million estimate. The stock gapped up and rose as much as over 15% at the open the following day, and currently trades near $40, well above the $37.62 close on the day prior to the earnings report. At current prices, its shares trade at an astronomical 200 times even forward FY 2012 earnings estimates of 20 cents per share, and at 8-9x FY 2014 analyst revenue projections of $577 million.
However, despite such lofty valuations, the Street continues to be enthusiastic about the stock, with nine of the fourteen analysts that cover it rating it at buy/strong buy and the remaining five rate it at hold, with a mean price target in the $43 range. Enthusiasm is based on the growing adoption of its cloud-based IT service desk platform by enterprise customers, including taking share away from its competitors, a strong customer renewal rate in the high 90% range, and the potential for it to cross-sell outside its core $5 billion IT service management market into the larger $8 billion market for custom applications. We believe that NOW is destined to be a long-term winner, but the risk to the downside is high at current prices, so we would wait for a pull-back near the 50-day moving average in the mid- to high $30s before adding it to our portfolio.
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Besides NOW, the following are additional institutional 13-D/G filings in the last week in the basic materials and energy sectors (see table above):
- Catamaran Corp. (CTRX), that is engaged in providing pharmacy benefit management services and healthcare information technology systems, in which mutual fund powerhouse Fidelity Investments, with $554 billion in 13F assets, filed SEC form SC 13G/A on May 10 indicating that it holds 14.01 million shares, cutting 10.69 million shares from the 24.70 million shares that it reported holding in the latest available Q4 2012 quarter.
- Citrix Systems Inc. (CTXS), that develops online application virtualization, networking and performance management software, in which Fidelity Investments filed SEC form SC 13G/A on May 10, indicating that it holds 5.07 million shares, cutting 10.06 million shares from the 15.13 million shares that it reported holding in a prior 13D/G filing on Feb. 14.
- Endo Health Solutions (ENDP) is a developer of branded and generic pharmaceutical products that treat various conditions such as pain and overactive bladder, in which Guru, Tiger Cub, and Star Manager John Griffin's hedge fund Blue Ridge Capital, with $7.2 billion in 13F assets, filed SEC form SC 13G on May 9 indicating that it holds 6.64 million shares. This is a new position for it since it reported its latest available Q4 2012 quarter.
- Ctrip.com (CTRP), a China-based consolidator of hotel accommodations, airline tickets and packaged tours targeting individual business and leisure travelers in China, in which Los Angeles-based Capital Group Co., with $1.1 trillion in 13F assets, filed SEC form SC 13G/A on May 10 indicating that it holds 3.495 million ADRs or 13.98 million shares, adding 0.24 million shares to the 13.74 million shares that it reported holding at the end of its latest available Q4 2012 quarter.
- Salesforce.com (CRM), that provides customer and collaboration relationship management software and services to various businesses and industries worldwide, in which Baltimore, M.D.-based technology sector-focused Brown Capital Management filed SEC form SC 13G on May 9 indicating that it holds 6.95 million shares, a new position for it since it reported its latest available Q4 2012 quarter.
- Teradata Corp. (TDC), a company focused on raising intelligence through data warehousing and enterprise analytics, in which BlackRock, the largest institutional manager in the world, with over $3.6 Trillion under management, including $1.1 Trillion in 13F assets, filed SEC form SC 13G/A on May 10 indicating that it holds 17.13 million shares, adding 1.86 million shares to the 15.27 million shares that it reported holding at the end of its recently reported Q1 2013 quarter.
- Yandex NV (YNDX), that is a Russian provider of internet search and web content, including news, mail and maps, in which Oppenheimer Funds filed SEC form SC 13G/A on May 13 indicating that it holds 20.99 million shares, an increase of 1.90 million shares from the 19.09 million shares that it reported holding at the end of Q1 2013.
Sources: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters, and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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