Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Global Payments Inc (NYSE:GPN) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Is Global Payments Inc (NYSE:GPN) a buy here? Money managers are becoming hopeful. The number of long hedge fund bets improved by 27 lately. Our calculations also showed that GPN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). GPN was in 64 hedge funds' portfolios at the end of the third quarter of 2019. There were 37 hedge funds in our database with GPN holdings at the end of the previous quarter.
[caption id="attachment_670377" align="alignnone" width="1613"] Aaron Cowen of Suvretta Capital Management[/caption]
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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example, Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to view the fresh hedge fund action encompassing Global Payments Inc (NYSE:GPN).
What have hedge funds been doing with Global Payments Inc (NYSE:GPN)?
At Q3's end, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 73% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GPN over the last 17 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Global Payments Inc (NYSE:GPN) was held by Coatue Management, which reported holding $649.1 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $581.2 million position. Other investors bullish on the company included Point72 Asset Management, Suvretta Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position, Joho Capital allocated the biggest weight to Global Payments Inc (NYSE:GPN), around 17.24% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, dishing out 9.83 percent of its 13F equity portfolio to GPN.
Consequently, specific money managers were leading the bulls' herd. Lone Pine Capital, previously managed by Stephen Mandel, established the most outsized position in Global Payments Inc (NYSE:GPN). Lone Pine Capital had $581.2 million invested in the company at the end of the quarter. Aaron Cowen's Suvretta Capital Management also made a $193 million investment in the stock during the quarter. The following funds were also among the new GPN investors: Larry Robbins's Glenview Capital, Brandon Haley's Holocene Advisors, and Andrew Immerman and Jeremy Schiffman's Palestra Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Global Payments Inc (NYSE:GPN) but similarly valued. These stocks are ServiceNow Inc (NYSE:NOW), Norfolk Southern Corp. (NYSE:NSC), Prudential Public Limited Company (NYSE:PUK), and Micron Technology, Inc. (NASDAQ:MU). All of these stocks' market caps match GPN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOW,86,5263766,9 NSC,46,1947473,-8 PUK,11,58421,6 MU,67,3620548,5 Average,52.5,2722552,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 52.5 hedge funds with bullish positions and the average amount invested in these stocks was $2723 million. That figure was $3525 million in GPN's case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand, Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 11 bullish hedge fund positions. Global Payments Inc (NYSE:GPN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on GPN as the stock returned 77% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.