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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Paychex, Inc. (NASDAQ:PAYX) based on that data.
Paychex, Inc. (NASDAQ:PAYX) was in 36 hedge funds’ portfolios at the end of December. PAYX shareholders have witnessed an increase in hedge fund interest in recent months. There were 32 hedge funds in our database with PAYX holdings at the end of the previous quarter. 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 below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind we’re going to take a look at the latest hedge fund action surrounding Paychex, Inc. (NASDAQ:PAYX).
How are hedge funds trading Paychex, Inc. (NASDAQ:PAYX)?
At the end of the fourth quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in PAYX a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (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, dishing out 1.76 percent of its 13F equity portfolio to PAYX.
Consequently, specific money managers were breaking ground themselves. Samlyn Capital, managed by Robert Pohly, assembled the most outsized 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 made a $5.1 million investment in the stock during the quarter. The other funds with new positions in the stock 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 – not necessarily in the same industry as Paychex, Inc. (NASDAQ:PAYX) but similarly valued. We will take a look at IHS Markit Ltd. (NYSE:INFO), Lululemon Athletica inc. (NASDAQ:LULU), Consolidated Edison, Inc. (NYSE:ED), and Equity Residential (NYSE:EQR). All of these stocks’ market caps are similar 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 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. Hedge funds were also right about betting on PAYX as the stock returned -11.6% during the first quarter (through March 11th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.