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

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Paypal Holdings Inc (NASDAQ:PYPL)? The smart money sentiment can provide an answer to this question.

Is Paypal Holdings Inc (NASDAQ:PYPL) worth your attention right now? Investors who are in the know were becoming hopeful. The number of bullish hedge fund bets advanced by 26 recently. Paypal Holdings Inc (NASDAQ:PYPL) was in 144 hedge funds’ portfolios at the end of June. The all time high for this statistics was 126. This means the bullish number of hedge fund positions in this stock currently sits at its new all time high. Our calculations also showed that PYPL ranked 9th among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most shareholders, hedge funds are seen as worthless, outdated investment tools of yesteryear. While there are over 8000 funds trading at present, We look at the bigwigs of this club, about 850 funds. These investment experts shepherd the lion’s share of the smart money’s total capital, and by keeping track of their matchless stock picks, Insider Monkey has uncovered various investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .


Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. Now we’re going to analyze the new hedge fund action encompassing Paypal Holdings Inc (NASDAQ:PYPL).

What have hedge funds been doing with Paypal Holdings Inc (NASDAQ:PYPL)?

At second quarter’s end, a total of 144 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PYPL over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ken Fisher’s Fisher Asset Management has the biggest position in Paypal Holdings Inc (NASDAQ:PYPL), worth close to $1.6978 billion, accounting for 1.7% of its total 13F portfolio. Coming in second is Lone Pine Capital, founded by Stephen Mandel, which holds a $1.2854 billion position; 6.5% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism contain Philippe Laffont’s Coatue Management, John Armitage’s Egerton Capital Limited and Gabriel Plotkin’s Melvin Capital Management. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to Paypal Holdings Inc (NASDAQ:PYPL), around 18.1% of its 13F portfolio. Portland Hill Asset Management is also relatively very bullish on the stock, dishing out 16.61 percent of its 13F equity portfolio to PYPL.

As industrywide interest jumped, some big names were leading the bulls’ herd. Egerton Capital Limited, managed by John Armitage, created the most valuable position in Paypal Holdings Inc (NASDAQ:PYPL). Egerton Capital Limited had $649.6 million invested in the company at the end of the quarter. Rajiv Jain’s GQG Partners also made a $456.7 million investment in the stock during the quarter. The other funds with brand new PYPL positions are Robert Joseph Caruso’s Select Equity Group, David Tepper’s Appaloosa Management LP, and Josh Resnick’s Jericho Capital Asset Management.

Let’s also examine hedge fund activity in other stocks similar to Paypal Holdings Inc (NASDAQ:PYPL). We will take a look at The Walt Disney Company (NYSE:DIS), Tesla Inc. (NASDAQ:TSLA), Netflix, Inc. (NASDAQ:NFLX), Novartis AG (NYSE:NVS), Cisco Systems, Inc. (NASDAQ:CSCO), Merck & Co., Inc. (NYSE:MRK), and The Coca-Cola Company (NYSE:KO). All of these stocks’ market caps match PYPL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DIS 105 6819839 3
TSLA 63 5560864 2
NFLX 113 13487546 4
NVS 21 1942870 -9
CSCO 59 2904558 1
MRK 76 4854278 -2
KO 59 20093024 4
Average 70.9 7951854 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 70.9 hedge funds with bullish positions and the average amount invested in these stocks was $7952 million. That figure was $11407 million in PYPL’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 21 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 96. 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 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on PYPL as the stock returned 17.3% since the end of June (through 10/16) 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.