Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will 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 nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Paychex, Inc. (NASDAQ:PAYX) and compare its performance to hedge funds' consensus picks in 2019.
Is Paychex, Inc. (NASDAQ:PAYX) worth your attention right now? Hedge funds are becoming less confident. The number of bullish hedge fund bets dropped by 6 in recent months. Our calculations also showed that PAYX 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).
To the average investor there are several metrics market participants employ to grade publicly traded companies. A couple of the less known metrics are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can outclass their index-focused peers by a very impressive amount (see the details here).
[caption id="attachment_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/caption]
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. Keeping this in mind we're going to take a gander at the recent hedge fund action surrounding Paychex, Inc. (NASDAQ:PAYX).
What does smart money think about Paychex, Inc. (NASDAQ:PAYX)?
Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PAYX over the last 17 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the biggest position in Paychex, Inc. (NASDAQ:PAYX). Select Equity Group has a $279.7 million position in the stock, comprising 1.9% of its 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $170.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise John Overdeck and David Siegel's Two Sigma Advisors, Israel Englander's Millennium Management and Greg Poole's Echo Street Capital Management. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Paychex, Inc. (NASDAQ:PAYX), around 1.89% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 0.99 percent of its 13F equity portfolio to PAYX.
Seeing as Paychex, Inc. (NASDAQ:PAYX) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of funds who were dropping their entire stakes by the end of the third quarter. It's worth mentioning that Peter Muller's PDT Partners dropped the largest stake of the 750 funds watched by Insider Monkey, totaling close to $9.8 million in stock. Donald Sussman's fund, Paloma Partners, also dumped its stock, about $6.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to Paychex, Inc. (NASDAQ:PAYX). These stocks are MPLX LP (NYSE:MPLX), Brown-Forman Corporation (NYSE:BF), IQVIA Holdings, Inc. (NYSE:IQV), and The Williams Companies, Inc. (NYSE:WMB). This group of stocks' market caps are closest to PAYX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MPLX,13,486509,2 BF,21,632843,-7 IQV,64,4469195,-3 WMB,36,643068,2 Average,33.5,1557904,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1558 million. That figure was $871 million in PAYX's case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 13 bullish hedge fund positions. Paychex, Inc. (NASDAQ:PAYX) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on PAYX, though not to the same extent, as the stock returned 34.3% in 2019 (as of 12/23) and outperformed the market. 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.