Were Hedge Funds Right About Paypal (PYPL)?

At Insider Monkey, we pore over the filings of nearly 887 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31st. In this article, we will use that wealth of knowledge to determine whether or not Paypal Holdings Inc (NASDAQ:PYPL) makes for a good investment right now.

Paypal Holdings Inc (NASDAQ:PYPL) was in 147 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 150. PYPL has seen a decrease in hedge fund sentiment of late. There were 150 hedge funds in our database with PYPL positions at the end of the third quarter. Our calculations also showed that PYPL ranked 9th among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

Brad Farber Atika Capital

Brad Farber of Atika Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. With all of this in mind let’s take a glance at the key hedge fund action encompassing Paypal Holdings Inc (NASDAQ:PYPL).

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

At Q4’s end, a total of 147 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from one quarter earlier. By comparison, 126 hedge funds held shares or bullish call options in PYPL a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is PYPL A Good Stock To Buy?

The largest stake in Paypal Holdings Inc (NASDAQ:PYPL) was held by Fundsmith LLP, which reported holding $2888.6 million worth of stock at the end of December. It was followed by Fisher Asset Management with a $2501.4 million position. Other investors bullish on the company included Coatue Management, SB Management, and Egerton Capital Limited. In terms of the portfolio weights assigned to each position Portland Hill Asset Management allocated the biggest weight to Paypal Holdings Inc (NASDAQ:PYPL), around 12.98% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, dishing out 12.6 percent of its 13F equity portfolio to PYPL.

Judging by the fact that Paypal Holdings Inc (NASDAQ:PYPL) has faced falling interest from the smart money, it’s safe to say that there exists a select few funds that elected to cut their entire stakes by the end of the fourth quarter. Interestingly,  Lone Pine Capital dumped the biggest investment of the 750 funds watched by Insider Monkey, totaling close to $1182.4 million in stock. Gabriel Plotkin’s fund, Melvin Capital Management, also dumped its stock, about $137.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the fourth quarter.

Let’s also examine hedge fund activity in other stocks similar to Paypal Holdings Inc (NASDAQ:PYPL). We will take a look at Bank of America Corporation (NYSE:BAC), Verizon Communications Inc. (NYSE:VZ), Adobe Inc. (NASDAQ:ADBE), Comcast Corporation (NASDAQ:CMCSA), Netflix, Inc. (NASDAQ:NFLX), The Coca-Cola Company (NYSE:KO), and NIKE, Inc. (NYSE:NKE). This group of stocks’ market caps are similar to PYPL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAC 99 35340008 11
VZ 67 10502830 2
ADBE 114 11927730 8
CMCSA 84 8831767 2
NFLX 116 15633343 12
KO 62 24683372 2
NKE 82 6285513 7
Average 89.1 16172080 6.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 89.1 hedge funds with bullish positions and the average amount invested in these stocks was $16172 million. That figure was $15961 million in PYPL’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand The Coca-Cola Company (NYSE:KO) is the least popular one with only 62 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 95.4. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on PYPL as the stock returned 14.4% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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