After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Automatic Data Processing (NASDAQ:ADP).
Is ADP a good stock to buy now? The smart money was becoming less hopeful. The number of bullish hedge fund positions were cut by 7 in recent months. Automatic Data Processing (NASDAQ:ADP) was in 42 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 56. Our calculations also showed that ADP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 49 hedge funds in our database with ADP positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. 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 website. Now let’s review the key hedge fund action encompassing Automatic Data Processing (NASDAQ:ADP).
Do Hedge Funds Think ADP Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ADP over the last 21 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Cedar Rock Capital was the largest shareholder of Automatic Data Processing (NASDAQ:ADP), with a stake worth $401.7 million reported as of the end of September. Trailing Cedar Rock Capital was D E Shaw, which amassed a stake valued at $309.5 million. Two Sigma Advisors, Arrowstreet Capital, and BlueSpruce Investments 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 Cedar Rock Capital allocated the biggest weight to Automatic Data Processing (NASDAQ:ADP), around 9.14% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, dishing out 4.51 percent of its 13F equity portfolio to ADP.
Seeing as Automatic Data Processing (NASDAQ:ADP) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of fund managers that elected to cut their full holdings in the third quarter. Intriguingly, Brandon Haley’s Holocene Advisors cut the biggest investment of the 750 funds watched by Insider Monkey, totaling an estimated $3.8 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund dropped about $2.3 million worth. These moves are interesting, as total hedge fund interest fell by 7 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Automatic Data Processing (NASDAQ:ADP) but similarly valued. We will take a look at Regeneron Pharmaceuticals Inc (NASDAQ:REGN), CSX Corporation (NASDAQ:CSX), Enbridge Inc (NYSE:ENB), BP plc (NYSE:BP), Infosys Limited (NYSE:INFY), Marsh & McLennan Companies, Inc. (NYSE:MMC), and The Southern Company (NYSE:SO). All of these stocks’ market caps are similar to ADP’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 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $1170 million. That figure was $1928 million in ADP’s case. CSX Corporation (NASDAQ:CSX) is the most popular stock in this table. On the other hand Infosys Limited (NYSE:INFY) is the least popular one with only 22 bullish hedge fund positions. Automatic Data Processing (NASDAQ:ADP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADP is 48.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on ADP as the stock returned 25.1% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.