Were Hedge Funds Right About Paypal Holdings (PYPL)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Paypal Holdings Inc (NASDAQ:PYPL) and determine whether hedge funds skillfully traded this stock.

Paypal Holdings Inc (NASDAQ:PYPL) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. Paypal Holdings Inc (NASDAQ:PYPL) was in 123 hedge funds’ portfolios at the end of September. The all time high for this statistic is 150. Our calculations also showed that PYPL ranked #9 among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind we’re going to view the new hedge fund action regarding Paypal Holdings Inc (NASDAQ:PYPL).

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

At the end of the third quarter, a total of 123 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards PYPL over the last 25 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Fundsmith LLP, managed by Terry Smith, holds the number one position in Paypal Holdings Inc (NASDAQ:PYPL). Fundsmith LLP has a $3.1977 billion position in the stock, comprising 8.8% of its 13F portfolio. On Fundsmith LLP’s heels is Fisher Asset Management, managed by Ken Fisher, which holds a $3.1206 billion position; the fund has 1.9% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, 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 26.29% of its 13F portfolio. Portland Hill Asset Management is also relatively very bullish on the stock, earmarking 13.89 percent of its 13F equity portfolio to PYPL.

Judging by the fact that Paypal Holdings Inc (NASDAQ:PYPL) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that slashed their full holdings last quarter. It’s worth mentioning that Masayoshi Son’s SB Management cut the largest investment of all the hedgies watched by Insider Monkey, valued at an estimated $702.3 million in stock, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund dropped about $291.5 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 20 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Paypal Holdings Inc (NASDAQ:PYPL) but similarly valued. These stocks are Adobe Inc. (NASDAQ:ADBE), Netflix, Inc. (NASDAQ:NFLX), salesforce.com, inc. (NYSE:CRM), Comcast Corporation (NASDAQ:CMCSA), Shell plc (NYSE:RDS), Exxon Mobil Corporation (NYSE:XOM), and Toyota Motor Corporation (NYSE:TM). This group of stocks’ market values resemble PYPL’s market value.

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As you can see these stocks had an average of 71.7 hedge funds with bullish positions and the average amount invested in these stocks was $8351 million. That figure was $12881 million in PYPL’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 10 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 90.6. 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 29.6% in 2021 and still beat the market by 3.6 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 -33.9% since the end of the third quarter (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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