Is Automatic Data Processing (NASDAQ:ADP) a buy?
If you were to ask many market players, hedge funds are seen as useless, old financial tools of a forgotten age. Although there are more than 8,000 hedge funds with their doors open currently, Insider Monkey aim at the elite of this club, about 525 funds. It is widely held that this group controls the lion’s share of the hedge fund industry’s total assets, and by tracking their highest performing investments, we’ve come up with a number of investment strategies that have historically outperformed Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).
Just as crucial, optimistic insider trading activity is a second way to analyze the world of equities. Obviously, there are lots of reasons for an upper level exec to get rid of shares of his or her company, but only one, very simple reason why they would buy. Several academic studies have demonstrated the impressive potential of this tactic if “monkeys” understand where to look (learn more here).
Keeping this in mind, it’s important to examine the latest info surrounding Automatic Data Processing (NASDAQ:ADP).
How are hedge funds trading Automatic Data Processing (NASDAQ:ADP)?
At Q2’s end, a total of 27 of the hedge funds we track held long positions in this stock, a change of 8% from the first quarter. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably.
As industrywide interest increased, certain money managers have been driving this bullishness. First Eagle Investment Management, managed by Matt McLennan, initiated the biggest position in Automatic Data Processing (NASDAQ:ADP). First Eagle Investment Management had 226.9 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $43.1 million investment in the stock during the quarter. The following funds were also among the new ADP investors: Tom Gayner’s Markel Gayner Asset Management, D. E. Shaw’s D E Shaw.
How have insiders been trading Automatic Data Processing (NASDAQ:ADP)?
Legal insider trading, particularly when it’s bullish, is most useful when the company we’re looking at has experienced transactions within the past six months. Over the last six-month time period, Automatic Data Processing (NASDAQ:ADP) has seen zero unique insiders buying, and 12 insider sales (see the details of insider trades here).
We’ll also examine the relationship between both of these indicators in other stocks similar to Automatic Data Processing (NASDAQ:ADP). These stocks are NetSuite Inc (NYSE:N), Amdocs Limited (NYSE:DOX), Iron Mountain Incorporated (NYSE:IRM), Citrix Systems, Inc. (NASDAQ:CTXS), and Cognizant Technology Solutions Corp (NASDAQ:CTSH). This group of stocks belong to the business software & services industry and their market caps are closest to ADP’s market cap.
| Company Name | # of Hedge Funds | # of Insiders Buying | # of Insiders Selling |
| NetSuite Inc (NYSE:N) | 18 | 0 | 9 |
| Amdocs Limited (NYSE:DOX) | 24 | 0 | 0 |
| Iron Mountain Incorporated (NYSE:IRM) | 29 | 4 | 1 |
| Citrix Systems, Inc. (NASDAQ:CTXS) | 36 | 0 | 8 |
| Cognizant Technology Solutions Corp (NASDAQ:CTSH) | 40 | 1 | 4 |
Using the returns shown by Insider Monkey’s studies, regular investors must always track hedge fund and insider trading activity, and Automatic Data Processing (NASDAQ:ADP) applies perfectly to this mantra.
