Were Hedge Funds Right About Paypal Holdings Inc (PYPL)?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Paypal Holdings Inc (NASDAQ:PYPL).

Is Paypal Holdings Inc (NASDAQ:PYPL) ready to rally soon? Money managers were becoming less confident. The number of bullish hedge fund positions dropped by 4 recently. Paypal Holdings Inc (NASDAQ:PYPL) was in 143 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 150. Our calculations also showed that PYPL ranked 8th among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Masayoshi Son SB Management

Masayoshi Son of SB Management

At Insider Monkey, we scour multiple sources to uncover 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 EV 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. Keeping this in mind we’re going to analyze the key hedge fund action encompassing Paypal Holdings Inc (NASDAQ:PYPL).

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

At Q1’s end, a total of 143 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. By comparison, 118 hedge funds held shares or bullish call options in PYPL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PYPL A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Terry Smith’s Fundsmith LLP has the largest position in Paypal Holdings Inc (NASDAQ:PYPL), worth close to $2.9881 billion, comprising 9.5% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $2.687 billion position; the fund has 1.9% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism comprise Masayoshi Son’s SB Management, and Philippe Laffont’s Coatue Management. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to Paypal Holdings Inc (NASDAQ:PYPL), around 16.08% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, dishing out 15.07 percent of its 13F equity portfolio to PYPL.

Since Paypal Holdings Inc (NASDAQ:PYPL) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few funds who sold off their entire stakes in the first quarter. Intriguingly, Rajiv Jain’s GQG Partners said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, totaling about $385.6 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $141.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Paypal Holdings Inc (NASDAQ:PYPL) but similarly valued. These stocks are Intel Corporation (NASDAQ:INTC), ASML Holding N.V. (NASDAQ:ASML), Comcast Corporation (NASDAQ:CMCSA), Verizon Communications Inc. (NYSE:VZ), Exxon Mobil Corporation (NYSE:XOM), Netflix, Inc. (NASDAQ:NFLX), and Adobe Inc. (NASDAQ:ADBE). This group of stocks’ market values are closest to PYPL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INTC 83 7616792 11
ASML 35 3827143 5
CMCSA 88 9762151 4
VZ 69 11383576 2
XOM 65 2770198 2
NFLX 110 14159343 -6
ADBE 107 12111692 -7
Average 79.6 8804414 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 79.6 hedge funds with bullish positions and the average amount invested in these stocks was $8804 million. That figure was $14717 million in PYPL’s case. Netflix, Inc. (NASDAQ:NFLX) 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 35 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 95.1. 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 25.8% in 2021 through August 6th and still managed to beat the market by 6.7 percentage points. Hedge funds were also right about betting on PYPL, though not to the same extent, as the stock returned 15.1% since the end of March (through August 6th) and outperformed the market as well.

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