Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Paychex, Inc. (NASDAQ:PAYX) was in 22 hedge funds’ portfolios at the end of the third quarter of 2015. PAYX has experienced a decrease in hedge fund sentiment recently. There were 31 hedge funds in our database with PAYX holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Potash Corp./Saskatchewan (USA) (NYSE:POT), Vornado Realty Trust (NYSE:VNO), and Intuitive Surgical, Inc. (NASDAQ:ISRG) to gather more data points.
Today there are plenty of metrics shareholders put to use to appraise their stock investments. Some of the most under-the-radar metrics are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can outperform their index-focused peers by a very impressive amount (see the details here).
With all of this in mind, we’re going to take a look at the key action encompassing Paychex, Inc. (NASDAQ:PAYX).
What does the smart money think about Paychex, Inc. (NASDAQ:PAYX)?
At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a slump of 29% from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of 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 most valuable position in Paychex, Inc. (NASDAQ:PAYX), worth close to $237.2 million, accounting for 2.3% of its total 13F portfolio. The second most bullish fund manager is David Harding of Winton Capital Management, with an $61.9 million position; 0.5% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions contain Greg Poole’s Echo Street Capital Management, Clint Carlson’s Carlson Capital and D. E. Shaw’s D E Shaw.
Seeing as Paychex, Inc. (NASDAQ:PAYX) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their positions entirely in the third quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dropped the biggest position of the 700 funds followed by Insider Monkey, totaling close to $11.7 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $8.4 million worth of PAYX shares. These transactions are interesting, as total hedge fund interest fell by 9 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Paychex, Inc. (NASDAQ:PAYX). These stocks are Potash Corp./Saskatchewan (USA) (NYSE:POT), Vornado Realty Trust (NYSE:VNO), Intuitive Surgical, Inc. (NASDAQ:ISRG), and Macy’s, Inc. (NYSE:M). This group of stocks’ market valuations are closest to PAYX’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $977 million. That figure was just $485 million in PAYX’s case. Macy’s, Inc. (NYSE:M) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Paychex, Inc. (NASDAQ:PAYX) is even less popular than VNO. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.