Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Paychex, Inc. (NASDAQ:PAYX) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Paychex, Inc. (NASDAQ:PAYX) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that PAYX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
[caption id="attachment_746893" align="aligncenter" width="400"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader's corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the fresh hedge fund action encompassing Paychex, Inc. (NASDAQ:PAYX).
What have hedge funds been doing with Paychex, Inc. (NASDAQ:PAYX)?
At Q4's end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in PAYX a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Paychex, Inc. (NASDAQ:PAYX), which was worth $278.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $84.6 million worth of shares. Echo Street Capital Management, AQR Capital Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hourglass Capital allocated the biggest weight to Paychex, Inc. (NASDAQ:PAYX), around 1.82% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, earmarking 1.76 percent of its 13F equity portfolio to PAYX.
As one would reasonably expect, specific money managers were breaking ground themselves. Samlyn Capital, managed by Robert Pohly, established the most valuable position in Paychex, Inc. (NASDAQ:PAYX). Samlyn Capital had $30.8 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also initiated a $5.1 million position during the quarter. The other funds with brand new PAYX positions are Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Paul Marshall and Ian Wace's Marshall Wace LLP, and Qing Li's Sciencast Management.
Let's go over hedge fund activity in other stocks similar to Paychex, Inc. (NASDAQ:PAYX). These stocks are IHS Markit Ltd. (NYSE:INFO), Lululemon Athletica inc. (NASDAQ:LULU), Consolidated Edison, Inc. (NYSE:ED), and Equity Residential (NYSE:EQR). This group of stocks' market caps are similar to PAYX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INFO,29,729273,-1 LULU,47,1133491,-5 ED,26,1204354,2 EQR,30,308617,4 Average,33,843934,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $844 million. That figure was $713 million in PAYX's case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand Consolidated Edison, Inc. (NYSE:ED) is the least popular one with only 26 bullish hedge fund positions. Paychex, Inc. (NASDAQ:PAYX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately PAYX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PAYX were disappointed as the stock returned -21.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. 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.