Global Payments Inc (GPN) Fell Out Of Favor With Hedge Funds

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Global Payments Inc (NYSE:GPN) and determine whether hedge funds had an edge regarding this stock.

Global Payments Inc (NYSE:GPN) was in 66 hedge funds’ portfolios at the end of June. The all time high for this statistics is 68. GPN has experienced a decrease in enthusiasm from smart money of late. There were 67 hedge funds in our database with GPN holdings at the end of March. Our calculations also showed that GPN isn’t 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.

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 56 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.

John Armitage of Egerton Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a look at the new hedge fund action encompassing Global Payments Inc (NYSE:GPN).

How are hedge funds trading Global Payments Inc (NYSE:GPN)?

At second quarter’s end, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GPN over the last 20 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Lone Pine Capital has the biggest position in Global Payments Inc (NYSE:GPN), worth close to $812.4 million, corresponding to 4.1% of its total 13F portfolio. Sitting at the No. 2 spot is Egerton Capital Limited, managed by John Armitage, which holds a $428.3 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Remaining peers that hold long positions consist of Panayotis Takis Sparaggis’s Alkeon Capital Management, Philippe Laffont’s Coatue Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Value Holdings LP allocated the biggest weight to Global Payments Inc (NYSE:GPN), around 12.07% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, setting aside 9.46 percent of its 13F equity portfolio to GPN.

Due to the fact that Global Payments Inc (NYSE:GPN) has faced a decline in interest from the smart money, logic holds that there were a few hedge funds that elected to cut their full holdings in the second quarter. It’s worth mentioning that Larry Robbins’s Glenview Capital cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $36.8 million in stock. James Dinan’s fund, York Capital Management, also cut its stock, about $22.7 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Global Payments Inc (NYSE:GPN) but similarly valued. These stocks are Sea Limited (NYSE:SE), Truist Financial Corporation (NYSE:TFC), CNOOC Limited (NYSE:CEO), Boston Scientific Corporation (NYSE:BSX), Intercontinental Exchange Inc (NYSE:ICE), The Bank of Nova Scotia (NYSE:BNS), and Newmont Corporation (NYSE:NEM). All of these stocks’ market caps are similar to GPN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $2079 million. That figure was $3312 million in GPN’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 13 bullish hedge fund positions. Global Payments Inc (NYSE:GPN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GPN is 71.5. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 28.2% in 2020 through August 24th but beat the market by 20.6 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 1.6% during the same time period 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 many of these stocks already outperformed the market so far this year.

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