Is PAYX Stock A Buy or Sell?

With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was Paychex, Inc. (NASDAQ:PAYX).

Is PAYX stock a buy? Paychex, Inc. (NASDAQ:PAYX) has seen an increase in activity from the world’s largest hedge funds lately. Paychex, Inc. (NASDAQ:PAYX) was in 32 hedge funds’ portfolios at the end of December. The all time high for this statistic is 41. Our calculations also showed that PAYX isn’t 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.

Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. With all of this in mind we’re going to take a glance at the latest hedge fund action encompassing Paychex, Inc. (NASDAQ:PAYX).

Do Hedge Funds Think PAYX Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PAYX 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.

Is PAYX A Good Stock To Buy?

The largest stake in Paychex, Inc. (NASDAQ:PAYX) was held by Select Equity Group, which reported holding $607.4 million worth of stock at the end of December. It was followed by Echo Street Capital Management with a $74.8 million position. Other investors bullish on the company included AQR Capital Management, Adage Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Paychex, Inc. (NASDAQ:PAYX), around 2.49% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, earmarking 1.85 percent of its 13F equity portfolio to PAYX.

As aggregate interest increased, key money managers have jumped into Paychex, Inc. (NASDAQ:PAYX) headfirst. ExodusPoint Capital, managed by Michael Gelband, created the most valuable position in Paychex, Inc. (NASDAQ:PAYX). ExodusPoint Capital had $2.5 million invested in the company at the end of the quarter. Qing Li’s Sciencast Management also made a $1.9 million investment in the stock during the quarter. The other funds with brand new PAYX positions are Greg Eisner’s Engineers Gate Manager, Donald Sussman’s Paloma Partners, and Jinghua Yan’s TwinBeech Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Paychex, Inc. (NASDAQ:PAYX) but similarly valued. We will take a look at STMicroelectronics N.V. (NYSE:STM), CRH PLC (NYSE:CRH), The Allstate Corporation (NYSE:ALL), V.F. Corporation (NYSE:VFC), Okta, Inc. (NASDAQ:OKTA), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), and O’Reilly Automotive Inc (NASDAQ:ORLY). This group of stocks’ market valuations match PAYX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STM 17 142352 -4
CRH 7 100951 0
ALL 38 838274 0
VFC 31 760265 9
OKTA 61 2308732 10
BBVA 9 196955 -1
ORLY 49 2416443 -9
Average 30.3 966282 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.3 hedge funds with bullish positions and the average amount invested in these stocks was $966 million. That figure was $911 million in PAYX’s case. Okta, Inc. (NASDAQ:OKTA) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 7 bullish hedge fund positions. Paychex, Inc. (NASDAQ:PAYX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PAYX is 55.6. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.2% in 2021 through April 12th and beat the market again by 1.5 percentage points. Unfortunately PAYX wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on PAYX were disappointed as the stock returned 3.6% since the end of December (through 4/12) and underperformed 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 many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.