Should You Avoid Paypal Holdings Inc (NASDAQ:PYPL)?

Indeed, most individual stocks are not stock-picking experts, but they can surely get better at mastering the art of choosing stocks. Generally, there are two widely-known approaches related to the stock selection and analysis process, which include the bottom-up approach and the top-down approach. The bottom-up approach involves studying thoroughly a certain company’s products and services, its balance sheet, financial performance, among other things. Those investors preferring the bottom-up stock selection approach over the top-down approach could also look at what hedge funds’ have to say about the companies under review. Making successful investment decisions based on the bottom-up investing approach involves making an in-depth review of each company, and the smart money industry can help investors throughout this process. For that reason, the following article will discuss how the hedge funds tracked by Insider Monkey were feeling about Paypal Holdings Inc. (NASDAQ:PYPL) in the fourth quarter of 2015, as well as discuss some recent developments at the company.

Paypal Holdings Inc. (NASDAQ:PYPL) was in 84 hedge funds’ portfolios at the end of the fourth quarter of 2015. PYPL shareholders have witnessed a slight decrease in hedge fund sentiment lately. There were 87 hedge funds in our database with PYPL holdings at the end of the previous quarter. At the end of this article we will also compare PYPL to other stocks, including Carnival Corporation (NYSE:CCL), Phillips 66 (NYSE:PSX), and General Dynamics Corporation (NYSE:GD) to get a better sense of its popularity.

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The technology platform company that enables digital and mobile payments became an independent publicly-traded company in July 2015 through a pro rata distribution by eBay Inc. (NASDAQ:EBAY) of all the outstanding common stock of PayPal. Paypal Holdings Inc. (NASDAQ:PYPL)’s shares have advanced 6% since the completion of the highly-scrutinized and much-applauded separation, implying that the company has been doing great as a standalone entity.

Keeping this in mind, we’re going to go over the fresh action encompassing Paypal Holdings Inc. (NASDAQ:PYPL) and some recent developments that happened around the company.Paypal Holdings Inc. (NASDAQ:PYPL) posted net revenues of $9.25 billion for 2015, which increased $1.22 billion or 15% year-over-year. The increase was mainly attributable to a higher total payment volume (TPV), which reached a growth rate of 20% in 2015. At the same time, the 20% growth in TPV was driven by growth in active accounts, increased number of payment transactions, and growth from the company’s Braintree and Venmo products. Paypal’s Venmo app is a mobile application that enables users to move money using their mobile devices. Just recently, several analysts expressed their views that market participants are underestimating the full potential of this peer-to-peer payment app, saying that investors’ worries about toughening competition from Apple Inc. (NASDAQ:AAPL)’s Apple Pay are overstated. Jefferies analyst, Jason Kupferberg, recently asserted that Paypal’s mobile revenue growth has accelerated since Apple launched its payments app and said that this app could lead to 2.1%-to-5.5% earning per share accretion for 2017 and 3.0%-to-6.7% in 2018.

Hedge fund activity in Paypal Holdings Inc. (NASDAQ:PYPL)

At the end of the fourth quarter, a total of 84 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 3% from the third quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Carl Icahn’s Icahn Capital LP has the biggest position in Paypal Holdings Inc. (NASDAQ:PYPL), worth close to $1.68 billion, comprising 5.7% of its total 13F portfolio. On Icahn Capital LP’s heels is Orbis Investment Management, led by William B. Gray, holding a $443.9 million position; 3.5% of its 13F portfolio is allocated to the stock. The remaining members of the smart money that hold long positions include D. E. Shaw’s D E Shaw, Seth Klarman’s Baupost Group and Kerr Neilson’s Platinum Asset Management.

Judging by the fact that Paypal Holdings Inc. (NASDAQ:PYPL) has faced a declination in interest from the smart money, we can see that there was a specific group of hedgies who sold their entire stakes during Q4. Interestingly, Kenneth Mario Garschina’s Mason Capital Management sold off the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $153 million in call options, and James Dinan’s York Capital Management was right behind this move, as the fund dropped about $56.1 million worth of shares. These moves are intriguing to say the least, as aggregate hedge fund interest fell by three funds heading into 2016.

Let’s also examine hedge fund activity in other stocks similar to Paypal Holdings Inc. (NASDAQ:PYPL). These stocks are Carnival Corporation (NYSE:CCL), Phillips 66 (NYSE:PSX), General Dynamics Corporation (NYSE:GD), and Charles Schwab Corp (NYSE:SCHW). This group of stocks’ market values are similar to PYPL’s market value.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $4.51 billion. That figure was $5.48 billion in PYPL’s case. Carnival Corporation (NYSE:CCL) is the most popular stock in this table. On the other hand Phillips 66 (NYSE:PSX) is the least popular one with only 35 bullish hedge fund positions. Compared to these stocks Paypal Holdings Inc. (NASDAQ:PYPL) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None