Was The Smart Money Right About Paypal Holdings Inc (PYPL)?

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Paypal Holdings Inc (NASDAQ:PYPL).

Paypal Holdings Inc (NASDAQ:PYPL) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 143 hedge funds’ portfolios at the end of the second quarter of 2021. Our calculations also showed that PYPL ranked 9th among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare PYPL to other stocks including The Home Depot, Inc. (NYSE:HD), The Procter & Gamble Company (NYSE:PG), and The Walt Disney Company (NYSE:DIS) to get a better sense of its popularity.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.


Ken Fisher of Fisher Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy 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. With all of this in mind we’re going to take a look at the key hedge fund action surrounding Paypal Holdings Inc (NASDAQ:PYPL).

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

At the end of June, a total of 143 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PYPL over the last 24 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Fundsmith LLP, managed by Terry Smith, holds the most valuable position in Paypal Holdings Inc (NASDAQ:PYPL). Fundsmith LLP has a $3.5821 billion position in the stock, comprising 9.9% of its 13F portfolio. Coming in second is Ken Fisher of Fisher Asset Management, with a $3.3744 billion position; the fund has 2.1% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions include Philippe Laffont’s Coatue Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Aravt Global allocated the biggest weight to Paypal Holdings Inc (NASDAQ:PYPL), around 17.05% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, setting aside 16.22 percent of its 13F equity portfolio to PYPL.

Judging by the fact that Paypal Holdings Inc (NASDAQ:PYPL) has experienced falling interest from hedge fund managers, it’s easy to see that there was a specific group of funds who sold off their full holdings by the end of the second quarter. Intriguingly, Robert Pitts’s Steadfast Capital Management dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $145.9 million in stock, and Josh Resnick’s Jericho Capital Asset Management was right behind this move, as the fund dropped about $116.2 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Paypal Holdings Inc (NASDAQ:PYPL) but similarly valued. We will take a look at The Home Depot, Inc. (NYSE:HD), The Procter & Gamble Company (NYSE:PG), The Walt Disney Company (NYSE:DIS), ASML Holding N.V. (NASDAQ:ASML), Adobe Inc. (NASDAQ:ADBE), Exxon Mobil Corporation (NYSE:XOM), and Comcast Corporation (NASDAQ:CMCSA). This group of stocks’ market values resemble PYPL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HD 64 4177204 -4
PG 68 6934291 -2
DIS 112 10830152 -22
ASML 44 4323106 9
ADBE 89 13101408 -18
XOM 68 3698096 3
CMCSA 84 9300743 -4
Average 75.6 7480714 -5.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 75.6 hedge funds with bullish positions and the average amount invested in these stocks was $7481 million. That figure was $16353 million in PYPL’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 44 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 94.6. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Unfortunately PYPL wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PYPL were disappointed as the stock returned -20.2% since the end of the second quarter (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 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.