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Were Hedge Funds Illusioned With Paychex, Inc. (PAYX)?

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Technology stocks had a lousy start to 2022. QQQ lost 9% of its value in January. Pandemic winners are getting crushed while energy stocks are surging. Roblox lost 36%, Moderna lost 33%, and Carvana and Shopify lost 30% of their values in January. We aren't certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Paychex, Inc. (NASDAQ:PAYX) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Paychex, Inc. (NASDAQ:PAYX) has experienced an increase in hedge fund sentiment recently. Paychex, Inc. (NASDAQ:PAYX) was in 34 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 41. Our calculations also showed that PAYX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Billionaire David Siegel's Top 10 Stock Picks
Billionaire David Siegel's Top 10 Stock Picks

David Siegel of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's take a look at the fresh hedge fund action surrounding Paychex, Inc. (NASDAQ:PAYX).

Do Hedge Funds Think PAYX Is A Good Stock To Buy Now?

At the end of September, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PAYX over the last 25 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PAYX A Good Stock To Buy?
Is PAYX A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Robert Joseph Caruso's Select Equity Group has the biggest position in Paychex, Inc. (NASDAQ:PAYX), worth close to $574.6 million, accounting for 1.9% of its total 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $127.9 million position; 0.2% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions contain Israel Englander's Millennium Management, John Overdeck and David Siegel's Two Sigma Advisors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Paychex, Inc. (NASDAQ:PAYX), around 1.93% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, setting aside 1.33 percent of its 13F equity portfolio to PAYX.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, created the most outsized position in Paychex, Inc. (NASDAQ:PAYX). Two Sigma Advisors had $61.9 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $44 million position during the quarter. The following funds were also among the new PAYX investors: Michael Gelband's ExodusPoint Capital, D. E. Shaw's D E Shaw, and Paul Tudor Jones's Tudor Investment Corp.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Paychex, Inc. (NASDAQ:PAYX) but similarly valued. We will take a look at Electronic Arts Inc. (NASDAQ:EA), Constellation Brands, Inc. (NYSE:STZ), Sempra Energy (NYSE:SRE), Aptiv PLC (NYSE:APTV), Baxter International Inc. (NYSE:BAX), SYSCO Corporation (NYSE:SYY), and STMicroelectronics N.V. (NYSE:STM). This group of stocks' market values match PAYX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EA,53,1097032,-3 STZ,53,1719109,3 SRE,23,287269,-5 APTV,44,1757047,4 BAX,42,3485785,-4 SYY,29,2245599,-11 STM,11,49115,-2 Average,36.4,1520137,-2.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $1520 million. That figure was $1115 million in PAYX's case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 11 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 overall hedge fund sentiment score for PAYX is 62.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on PAYX as the stock returned 5.9% since the end of the third quarter (through 1/31) and outperformed the market by an even larger margin.

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