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Were Hedge Funds Right About Global Payments Inc (GPN)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December 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 Global Payments Inc (NYSE:GPN).

Global Payments Inc (NYSE:GPN) has seen a decrease in hedge fund interest lately. GPN was in 64 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 68 hedge funds in our database with GPN holdings at the end of the previous quarter. Our calculations also showed that GPN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the latest hedge fund action regarding Global Payments Inc (NYSE:GPN).

How have hedgies been trading Global Payments Inc (NYSE:GPN)?

At the end of the fourth quarter, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in GPN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is GPN A Good Stock To Buy?

The largest stake in Global Payments Inc (NYSE:GPN) was held by Lone Pine Capital, which reported holding $592.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $464.1 million position. Other investors bullish on the company included Coatue Management, Alkeon Capital Management, and Steadfast Capital Management. In terms of the portfolio weights assigned to each position Joho Capital allocated the biggest weight to Global Payments Inc (NYSE:GPN), around 19.05% of its 13F portfolio. Caldera Capital is also relatively very bullish on the stock, earmarking 17.62 percent of its 13F equity portfolio to GPN.

Since Global Payments Inc (NYSE:GPN) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies who sold off their entire stakes last quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw cut the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth close to $27.6 million in stock. Charles Clough’s fund, Clough Capital Partners, also dumped its stock, about $17.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 4 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Global Payments Inc (NYSE:GPN). We will take a look at Deere & Company (NYSE:DE), The Sherwin-Williams Company (NYSE:SHW), Biogen Inc. (NASDAQ:BIIB), and Advanced Micro Devices, Inc. (NASDAQ:AMD). All of these stocks’ market caps are similar to GPN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DE 50 1403325 9
SHW 55 1847137 4
BIIB 61 5162729 8
AMD 53 1462695 -6
Average 54.75 2468972 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 54.75 hedge funds with bullish positions and the average amount invested in these stocks was $2469 million. That figure was $4064 million in GPN’s case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand Deere & Company (NYSE:DE) is the least popular one with only 50 bullish hedge fund positions. Compared to these stocks Global Payments Inc (NYSE:GPN) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately GPN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GPN were disappointed as the stock returned -18.7% during the three months of 2020 (through April 20th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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