Paychex, Inc. (PAYX) Lags Peers in Smart Money Ownership

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 7.6% during the last 12 months ending November 21, 2016. Most investors don’t notice that less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 mid-cap stocks among the best performing hedge funds had an average return of 18% during the same period. Hedge funds had bad stock picks like everyone else. We are sure you have read about their worst picks, like Valeant, in the media over the past year. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Paychex, Inc. (NASDAQ:PAYX).

Is Paychex, Inc. (NASDAQ:PAYX) going to take off soon? Prominent investors are buying. The number of bullish hedge fund positions improved by 1 recently. At the end of this article we will also compare PAYX to other stocks including State Street Corporation (NYSE:STT), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), and Edwards Lifesciences Corp (NYSE:EW) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Hedge fund activity in Paychex, Inc. (NASDAQ:PAYX)

At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a modest increase of 4% from the second quarter of 2016, and a 20% rise since the first quarter. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Robert Joseph Caruso’s Select Equity Group has the number one position in Paychex, Inc. (NASDAQ:PAYX), worth close to $440.2 million and amounting to 3.8% of its total 13F portfolio. Sitting at the No. 2 spot is Jim Simons’ Renaissance Technologies which holds a $39.7 million position. Remaining members of the smart money with similar optimism consist of Phill Gross and Robert Atchinson’s Adage Capital Management, Cliff Asness’ AQR Capital Management, and Ken Griffin’s Citadel Investment Group.

Consequently, specific money managers have been driving this bullishness. Renaissance Technologies assembled the most outsized position in Paychex, Inc. (NASDAQ:PAYX). Citadel Investment Group also initiated a $12 million position during the quarter. The other funds with new positions in the stock are George Hall’s Clinton Group, Matthew Hulsizer’s PEAK6 Capital Management, and Mike Vranos’ Ellington.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Paychex, Inc. (NASDAQ:PAYX) but similarly valued. We will take a look at State Street Corporation (NYSE:STT), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), Edwards Lifesciences Corp (NYSE:EW), and Synchrony Financial (NYSE:SYF). This group of stocks’ market values match PAYX’s market value.

As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $1.78 billion. That figure was just $613 million in PAYX’s case. Synchrony Financial (NYSE:SYF) is the most popular stock in this table. On the other hand State Street Corporation (NYSE:STT) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Paychex, Inc. (NASDAQ:PAYX) is even less popular than STT. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None