We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Paycom Software Inc (NYSE:PAYC) and determine whether hedge funds skillfully traded this stock.
Is Paycom Software Inc (NYSE:PAYC) undervalued? Investors who are in the know were getting more optimistic. The number of long hedge fund positions rose by 6 recently. Paycom Software Inc (NYSE:PAYC) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PAYC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Today there are several metrics investors put to use to evaluate their holdings. A duo of the most useful metrics are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the best fund managers can trounce the broader indices by a significant amount (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 latest hedge fund action encompassing Paycom Software Inc (NYSE:PAYC).
How are hedge funds trading Paycom Software Inc (NYSE:PAYC)?
At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PAYC over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Paycom Software Inc (NYSE:PAYC), with a stake worth $84 million reported as of the end of September. Trailing Citadel Investment Group was Fisher Asset Management, which amassed a stake valued at $74.7 million. Hitchwood Capital Management, SQN Investors, and Arrowstreet Capital 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 SQN Investors allocated the biggest weight to Paycom Software Inc (NYSE:PAYC), around 3.49% of its 13F portfolio. Hitchwood Capital Management is also relatively very bullish on the stock, setting aside 2.17 percent of its 13F equity portfolio to PAYC.
Consequently, specific money managers were breaking ground themselves. Hitchwood Capital Management, managed by James Crichton, established the largest position in Paycom Software Inc (NYSE:PAYC). Hitchwood Capital Management had $46.5 million invested in the company at the end of the quarter. Amish Mehta’s SQN Investors also initiated a $45.1 million position during the quarter. The other funds with new positions in the stock are Anand Parekh’s Alyeska Investment Group, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Paycom Software Inc (NYSE:PAYC). We will take a look at Yum China Holdings, Inc. (NYSE:YUMC), DISH Network Corp. (NASDAQ:DISH), Chewy, Inc. (NYSE:CHWY), Delta Air Lines, Inc. (NYSE:DAL), Fortis Inc. (NYSE:FTS), PG&E Corporation (NYSE:PCG), and Slack Technologies Inc (NYSE:WORK). This group of stocks’ market values are similar to PAYC’s market value.
|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 43.4 hedge funds with bullish positions and the average amount invested in these stocks was $1359 million. That figure was $504 million in PAYC’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 8 bullish hedge fund positions. Paycom Software Inc (NYSE:PAYC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PAYC is 56.7. 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. This is a slightly negative signal and 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately PAYC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PAYC investors were disappointed as the stock returned -3.3% since Q2 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.