The Insider Monkey team has completed processing the quarterly 13F filings for the March quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Paychex, Inc. (NASDAQ:PAYX).
Is Paychex, Inc. (NASDAQ:PAYX) going to take off soon? The best stock pickers were turning less bullish. The number of bullish hedge fund positions shrunk by 7 recently. Paychex, Inc. (NASDAQ:PAYX) was in 25 hedge funds’ portfolios at the end of the first 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 Q1 rankings). There were 32 hedge funds in our database with PAYX positions at the end of the fourth quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to go over the fresh hedge fund action encompassing Paychex, Inc. (NASDAQ:PAYX).
Do Hedge Funds Think PAYX Is A Good Stock To Buy Now?
At first quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in PAYX over the last 23 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Robert Joseph Caruso’s Select Equity Group has the number one position in Paychex, Inc. (NASDAQ:PAYX), worth close to $628.1 million, corresponding to 2.3% of its total 13F portfolio. Sitting at the No. 2 spot is Echo Street Capital Management, managed by Greg Poole, which holds a $95.7 million position; 0.9% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions encompass Cliff Asness’s AQR Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management 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 2.28% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, dishing out 1.47 percent of its 13F equity portfolio to PAYX.
Judging by the fact that Paychex, Inc. (NASDAQ:PAYX) has experienced falling interest from the smart money, logic holds that there exists a select few money managers that slashed their entire stakes by the end of the first quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors dumped the largest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $19.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $7.8 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds by the end of the first quarter.
Let’s check out hedge fund activity in other stocks similar to Paychex, Inc. (NASDAQ:PAYX). We will take a look at Barrick Gold Corporation (NYSE:GOLD), AFLAC Incorporated (NYSE:AFL), Chewy, Inc. (NYSE:CHWY), Marathon Petroleum Corp (NYSE:MPC), The Allstate Corporation (NYSE:ALL), LyondellBasell Industries NV (NYSE:LYB), and International Flavors & Fragrances Inc (NYSE:IFF). This group of stocks’ market caps are closest to PAYX’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.7 hedge funds with bullish positions and the average amount invested in these stocks was $1348 million. That figure was $872 million in PAYX’s case. International Flavors & Fragrances Inc (NYSE:IFF) is the most popular stock in this table. On the other hand Chewy, Inc. (NYSE:CHWY) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Paychex, Inc. (NASDAQ:PAYX) is even less popular than CHWY. Our overall hedge fund sentiment score for PAYX is 16.3. 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 24% in 2021 through July 9th but managed to beat the market by 6.7 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 14.9% since the end of March (through July 9th) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.