Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details.). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Paypal Holdings Inc (NASDAQ:PYPL) in this article.
Is Paypal Holdings Inc (NASDAQ:PYPL) a cheap stock to buy now? The smart money is becoming hopeful. The number of long hedge fund bets advanced by 22 recently. Our calculations also showed that PYPL ranked 8th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). PYPL was in 126 hedge funds’ portfolios at the end of December. There were 104 hedge funds in our database with PYPL holdings at the end of the previous quarter.
Video: Click the image to 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 41 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.
Aaron Cowen of Suvretta Capital Management
We leave no stone unturned when looking for the next great investment idea. For example this gold mining company is acquiring gold mines in Americas at a fraction of the cost of drilling them, so we look into its viability. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned nearly 50% despite the large losses in the market since our recommendation. With all of this in mind let’s review the latest hedge fund action encompassing Paypal Holdings Inc (NASDAQ:PYPL).
How have hedgies been trading Paypal Holdings Inc (NASDAQ:PYPL)?
At the end of the foruth quarter, a total of 126 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. On the other hand, there were a total of 103 hedge funds with a bullish position in PYPL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Paypal Holdings Inc (NASDAQ:PYPL) was held by Citadel Investment Group, which reported holding $492.3 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $457.3 million position. Other investors bullish on the company included D E Shaw, Arrowstreet Capital, and Lone Pine Capital. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to Paypal Holdings Inc (NASDAQ:PYPL), around 9.68% of its 13F portfolio. Concourse Capital Management is also relatively very bullish on the stock, earmarking 8.25 percent of its 13F equity portfolio to PYPL.
As industrywide interest jumped, specific money managers were breaking ground themselves. Lone Pine Capital, founded by Stephen Mandel, established the biggest position in Paypal Holdings Inc (NASDAQ:PYPL). Lone Pine Capital had $363.9 million invested in the company at the end of the quarter. Chase Coleman’s Tiger Global Management LLC also made a $264.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Aaron Cowen’s Suvretta Capital Management, Josh Resnick’s Jericho Capital Asset Management, and James Parsons’s Junto Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Paypal Holdings Inc (NASDAQ:PYPL) but similarly valued. We will take a look at Honeywell International Inc. (NYSE:HON), Eli Lilly and Company (NYSE:LLY), Sanofi (NASDAQ:SNY), and Broadcom Inc (NASDAQ:AVGO). 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 |
|---|---|---|---|
| HON | 55 | 2282262 | -3 |
| LLY | 43 | 1493296 | -1 |
| SNY | 31 | 1113585 | 3 |
| AVGO | 61 | 2513808 | 2 |
| Average | 47.5 | 1850738 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.5 hedge funds with bullish positions and the average amount invested in these stocks was $1851 million. That figure was $6226 million in PYPL’s case. Broadcom Inc (NASDAQ:AVGO) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Paypal Holdings Inc (NASDAQ:PYPL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Hedge funds were also right about betting on PYPL as the stock returned 4.3% so far in Q1 (through March 2nd) 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.
Disclosure: None. This article was originally published at Insider Monkey.
