Hedge Funds Don’t Particularly Like 2 Of These 3 Upgraded Stocks

Three notable stocks were given recommendations by analysts this morning, and we’ll run through each of them and discuss the latest analyst action on them and the effect it has had on their stock. In addition, we’ll check out what elite hedge funds think about these stocks and whether they should be considered good purchases at the moment.

Let’s start with Paypal Holdings Inc (NASDAQ:PYPL), which was given a ‘Buy’ recommendation this morning from Canaccord Genuity, which initiated coverage on the recently spun-off company. Canaccord set a price target of $43 on the stock, representing upside potential of 26% from its current price, factoring in this morning’s gains of 0.82% thus far.

We have yet to see a hedge fund file on Paypal Holdings Inc (NASDAQ:PYPL), but we can guess at the firm’s top shareholders, given that shareholders of eBay Inc (NASDAQ:EBAY) received one share of PayPal for each of their shares of eBay. That would put Carl Icahn of Icahn Capital in the position of the top Paypal Holdings Inc (NASDAQ:PYPL) shareholder in our database, as he owned over 46.27 million shares of eBay. It would also set Paypal up to be one of the most popular stocks among billionaires, since eBay was the most popular tech stock among that wealthy group of investors. Of course, the new shareholders may have sold off their positions since the spinoff, so we can only wait until the next round of 13F filings to see just how popular both eBay and Paypal are now that they’ve divorced.

Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 118% since August 2012, beating the S&P 500 ETF (SPY) by over 60 percentage points (read more details here).

Box Inc (NYSE:BOX) was also updated by Canaccord Genuity, which raised it to ‘Buy’ from ‘Hold’, with an $18 price target, an upside of nearly 40%. The upgrade shouldn’t necessarily be seen as a sign that the cloud services company is in great shape or is making strides to improve its operations, but rather that it’s simply fallen so far that it may finally make for a good investment. Box Inc (NYSE:BOX) has tumbled by over 40% since its IPO near the beginning of the year, and even the $18 price target and the large upside it would suggest would only return Box Inc to its mid-July level. Shares are up by about 2% so far this morning.

Box Inc (NYSE:BOX) has certainly proven to be a disappointing investment thus far following its relatively hyped IPO, but hedge funds have wisely steered clear for the most part. The investors we track owned just 1.90% of Box’s common shares, with nine investors holding $43.49 million in said shares. Over half of those were held by Philippe Laffont’s Coatue Management, which held a stake of 1.25 million shares throughout the entire second quarter.

Lastly is 3M Co (NYSE:MMM), which got the upgrade treatment from Credit Suisse this morning, getting lifted to ‘Outperform’ from ‘Neutral’, though its price target was maintained at $155. As with Box, the upgrade on 3M Co (NYSE:MMM) is primarily due to weakness, as the price target would also take it back to just mid-July levels. It also provides much lower upside potential at less than 13%. 3M is down by over 15% year-to-date, but up by about 1% today.

3M Co (NYSE:MMM) is another stock that the hedge funds we monitor don’t particularly care for, all things considered. It ranked as one of the least popular Dow stocks among them at the end of last year, with just 33 investors holding long positions in the stock, the third-lowest total. That total has since risen to 40, but they still own just 2.10% of its common shares, worth $2.10 billion. 3M appears to be a stock for the birds, as First Eagle Investment Management and Boykin Curry’s Eagle Capital Management were the top shareholders among those elite funds.

Disclosure: None