Is Automatic Data Processing (ADP) A Good Stock To Buy Now?

Does Automatic Data Processing (NASDAQ:ADP) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund sentiment towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years.

Automatic Data Processing (NASDAQ:ADP) was in 32 hedge funds’ portfolios at the end of the third quarter of 2016. ADP has seen a decrease in hedge fund interest in recent months. There were 34 hedge funds in our database with ADP holdings at the end of the second 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, or vice-versa. That’s why at the end of this article we will examine companies such as The Bank of New York Mellon Corporation (NYSE:BK), Kinder Morgan Inc (NYSE:KMI), and Phillips 66 (NYSE:PSX) to gather more data points.

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Hedge fund activity in Automatic Data Processing (NASDAQ:ADP)

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a 6% dip from the second quarter of 2016. That followed a large increase during the second quarter, during which the number of hedge fund positions jumped by over 25%. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Andy Brown’s Cedar Rock Capital has the most valuable position in Automatic Data Processing (NASDAQ:ADP), worth close to $374.6 million, accounting for 9.2% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, led by Jim Simons, holding a $54.9 million position. Remaining members of the smart money with similar optimism contain Joel Greenblatt’s Gotham Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Tom Gayner’s Markel Gayner Asset Management.

Judging by the fact that Automatic Data Processing (NASDAQ:ADP) has experienced bearish sentiment from the smart money, it’s easy to see that there is a sect of hedge funds that slashed their positions entirely during the third quarter. It’s worth mentioning that First Eagle Investment Management dumped the biggest investment of the 700 funds monitored by Insider Monkey, valued at close to $180 million in call options. Ken Griffin’s fund, Citadel Investment Group, also dropped its call options, about $10.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Automatic Data Processing (NASDAQ:ADP). We will take a look at The Bank of New York Mellon Corporation (NYSE:BK), Kinder Morgan Inc (NYSE:KMI), Phillips 66 (NYSE:PSX), and Target Corporation (NYSE:TGT). All of these stocks’ market caps are closest to ADP’s market cap.

As you can see these stocks had an average of 43.5 hedge funds with bullish positions and the average amount invested in these stocks was $3.59 billion. That figure was $817 million in ADP’s case. Kinder Morgan Inc (NYSE:KMI) is the most popular stock in this table. On the other hand Phillips 66 (NYSE:PSX) is the least popular one with only 29 bullish hedge fund positions. Automatic Data Processing (NASDAQ:ADP) is not the least popular stock in this group but hedge fund interest is still below average, as is the amount of money invested in it. Coupled with the dip in hedge fund ownership, this is a slightly negative signal, as we’d rather spend our time researching stocks that hedge funds are piling on. In this regard KMI might be a better candidate to consider for a long position.

Disclosure: None