We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Paypal Holdings Inc (NASDAQ:PYPL).
Is PYPL stock a buy or sell? Paypal Holdings Inc (NASDAQ:PYPL) was in 147 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 150. PYPL has seen a decrease in hedge fund sentiment in recent months. There were 150 hedge funds in our database with PYPL holdings at the end of September. Our calculations also showed that PYPL ranked 10th among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 124 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, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Keeping this in mind we’re going to review the recent hedge fund action surrounding Paypal Holdings Inc (NASDAQ:PYPL).
Do Hedge Funds Think PYPL Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 147 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in PYPL over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fundsmith LLP held the most valuable stake in Paypal Holdings Inc (NASDAQ:PYPL), which was worth $2888.6 million at the end of the fourth quarter. On the second spot was Fisher Asset Management which amassed $2501.4 million worth of shares. Coatue Management, SB Management, and Egerton Capital Limited 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 Portland Hill Asset Management allocated the biggest weight to Paypal Holdings Inc (NASDAQ:PYPL), around 12.98% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, designating 12.6 percent of its 13F equity portfolio to PYPL.
Seeing as Paypal Holdings Inc (NASDAQ:PYPL) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedgies that elected to cut their entire stakes by the end of the fourth quarter. Interestingly, Lone Pine Capital cut the largest investment of all the hedgies monitored by Insider Monkey, worth an estimated $1182.4 million in stock, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund cut about $137.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds by the end of the fourth quarter.
Let’s check out hedge fund activity in other stocks similar to Paypal Holdings Inc (NASDAQ:PYPL). We will take a look at salesforce.com, inc. (NYSE:CRM), The Walt Disney Company (NYSE:DIS), Netflix, Inc. (NASDAQ:NFLX), Intel Corporation (NASDAQ:INTC), The Coca-Cola Company (NYSE:KO), Comcast Corporation (NASDAQ:CMCSA), and Merck & Co., Inc. (NYSE:MRK). All of these stocks’ market caps resemble PYPL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 93.9 hedge funds with bullish positions and the average amount invested in these stocks was $12699 million. That figure was $15961 million in PYPL’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand The Coca-Cola Company (NYSE:KO) is the least popular one with only 62 bullish hedge fund positions. Compared to these stocks Paypal Holdings Inc (NASDAQ:PYPL) is more popular among hedge funds. Our overall hedge fund sentiment score for PYPL is 96. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and still beat the market by 1.6 percentage points. Hedge funds were also right about PYPL as the stock returned 6.9% since the end of the fourth quarter (through 3/12) and outperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.