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In this article you are going to find out whether hedge funds think Automatic Data Processing, Inc. (NASDAQ:ADP) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is ADP stock a buy or sell? Automatic Data Processing, Inc. (NASDAQ:ADP) investors should pay attention to an increase in enthusiasm from smart money of late. Automatic Data Processing, Inc. (NASDAQ:ADP) was in 48 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 56. There were 42 hedge funds in our database with ADP positions at the end of the third quarter. Our calculations also showed that ADP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
To the average investor there are plenty of indicators investors can use to grade stocks. A pair of the less known indicators are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the top fund managers can outperform the market by a significant margin (see the details here).
Paul Marshall of Marshall Wace
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Do Hedge Funds Think ADP Is A Good Stock To Buy Now?
At the end of December, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the third quarter of 2020. On the other hand, there were a total of 51 hedge funds with a bullish position in ADP a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Automatic Data Processing, Inc. (NASDAQ:ADP) was held by Fundsmith LLP, which reported holding $1248.8 million worth of stock at the end of December. It was followed by Cedar Rock Capital with a $465.4 million position. Other investors bullish on the company included GuardCap Asset Management, Two Sigma Advisors, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cedar Rock Capital allocated the biggest weight to Automatic Data Processing, Inc. (NASDAQ:ADP), around 10.06% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, setting aside 4.76 percent of its 13F equity portfolio to ADP.
Now, specific money managers have been driving this bullishness. Lunia Capital, managed by Vikas Lunia, initiated the most outsized position in Automatic Data Processing, Inc. (NASDAQ:ADP). Lunia Capital had $11.5 million invested in the company at the end of the quarter. Jinghua Yan's TwinBeech Capital also made a $9.3 million investment in the stock during the quarter. The following funds were also among the new ADP investors: Peter Muller's PDT Partners, Paul Marshall and Ian Wace's Marshall Wace LLP, and Dmitry Balyasny's Balyasny Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to Automatic Data Processing, Inc. (NASDAQ:ADP). These stocks are Cigna Corporation (NYSE:CI), Snap Inc. (NYSE:SNAP), Baidu, Inc. (NASDAQ:BIDU), Prologis Inc (NYSE:PLD), Colgate-Palmolive Company (NYSE:CL), Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR), and Gilead Sciences, Inc. (NASDAQ:GILD). This group of stocks' market valuations are similar to ADP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CI,57,2578300,-5 SNAP,63,4610841,12 BIDU,51,4634061,8 PLD,36,655443,3 CL,46,1515874,-1 PBR,24,1335976,-7 GILD,72,2021867,11 Average,49.9,2478909,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 49.9 hedge funds with bullish positions and the average amount invested in these stocks was $2479 million. That figure was $3065 million in ADP's case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR) is the least popular one with only 24 bullish hedge fund positions. Automatic Data Processing, Inc. (NASDAQ:ADP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ADP is 60.7. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market by 0.8 percentage points. A small number of hedge funds were also right about betting on ADP, though not to the same extent, as the stock returned 4.9% since the end of Q4 (through March 19th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.