Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Paypal Holdings Inc (NASDAQ:PYPL).
Paypal Holdings Inc (NASDAQ:PYPL) investors should be aware of a small decrease in enthusiasm from smart money lately. Nevertheless, hedge fund sentiment towards the stock is still near its all time high that was reached at the end of 2018. Our calculations also showed that PYPL currently ranks 16th among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a look at the latest hedge fund action encompassing Paypal Holdings Inc (NASDAQ:PYPL).
What does the smart money think about Paypal Holdings Inc (NASDAQ:PYPL)?
At the end of the first quarter, a total of 93 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PYPL over the last 15 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Third Point was the largest shareholder of Paypal Holdings Inc (NASDAQ:PYPL), with a stake worth $363.4 million reported as of the end of March. Trailing Third Point was Coatue Management, which amassed a stake valued at $339 million. Citadel Investment Group, Whale Rock Capital Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Because Paypal Holdings Inc (NASDAQ:PYPL) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few money managers that elected to cut their positions entirely heading into Q3. Intriguingly, Stephen Mandel’s Lone Pine Capital dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $484.6 million in call options. Steve Cohen’s fund, Point72 Asset Management, also said goodbye to its call options, about $174 million worth. These transactions are important to note, as total hedge fund interest dropped by 10 funds heading into Q3.
Let’s check out hedge fund activity in other stocks similar to Paypal Holdings Inc (NASDAQ:PYPL). We will take a look at DowDuPont Inc. (NYSE:DWDP), PetroChina Company Limited (NYSE:PTR), 3M Company (NYSE:MMM), and AbbVie Inc (NYSE:ABBV). This group of stocks’ market valuations match PYPL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DWDP | 61 | 1910098 | -6 |
| PTR | 12 | 124953 | -2 |
| MMM | 43 | 441353 | 7 |
| ABBV | 47 | 3858080 | 1 |
| Average | 40.75 | 1583621 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $1584 million. That figure was $3610 million in PYPL’s case. DowDuPont Inc. (NYSE:DWDP) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 12 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on PYPL as the stock returned 7.3% during the same period 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.
