This Metric Says You Are Smart to Buy Paychex, Inc. (PAYX)

Is Paychex, Inc. (NASDAQ:PAYX) a good investment?

If you were to ask many market players, hedge funds are viewed as overrated, old financial vehicles of a forgotten age. Although there are over 8,000 hedge funds trading today, Insider Monkey looks at the moguls of this group, about 525 funds. It is assumed that this group oversees the majority of the smart money’s total capital, and by watching their highest quality stock picks, we’ve unearthed a number of investment strategies that have historically beaten the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).

Just as necessary, bullish insider trading activity is a second way to look at the investments you’re interested in. There are many incentives for an insider to cut shares of his or her company, but just one, very simple reason why they would initiate a purchase. Plenty of academic studies have demonstrated the useful potential of this strategy if piggybackers know what to do (learn more here).

Thus, we’re going to study the newest info for Paychex, Inc. (NASDAQ:PAYX).

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

In preparation for the third quarter, a total of 15 of the hedge funds we track held long positions in this stock, a change of 15% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably.

When using filings from the hedgies we track, Select Equity Group, managed by Robert Joseph Caruso, holds the biggest position in Paychex, Inc. (NASDAQ:PAYX). Select Equity Group has a $101.4 million position in the stock, comprising 1.4% of its 13F portfolio. On Select Equity Group’s heels is Clint Carlson of Carlson Capital, with a $42.7 million position; 0.5% of its 13F portfolio is allocated to the stock. Remaining hedge funds with similar optimism include David Harding’s Winton Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Matthew Hulsizer’s PEAK6 Capital Management.

With a general bullishness amongst the titans, particular hedge funds were leading the bulls’ herd. Select Equity Group, managed by Robert Joseph Caruso, established the largest position in Paychex, Inc. (NASDAQ:PAYX). Select Equity Group had 101.4 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $42.7 million investment in the stock during the quarter. The following funds were also among the new PAYX investors: David Harding’s Winton Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Insider trading activity in Paychex, Inc. (NASDAQ:PAYX)

Insider buying is at its handiest when the company in question has seen transactions within the past 180 days. Over the latest six-month time period, Paychex, Inc. (NASDAQ:PAYX) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also take a look at the relationship between both of these indicators in other stocks similar to Paychex, Inc. (NASDAQ:PAYX). These stocks are On Assignment, Inc. (NYSE:ASGN), 51job, Inc. (ADR) (NASDAQ:JOBS), Team Health Holdings LLC (NYSE:TMH), Manpowergroup Inc (NYSE:MAN), and Robert Half International Inc. (NYSE:RHI). This group of stocks belong to the staffing & outsourcing services industry and their market caps resemble PAYX’s market cap.

Using the returns explained by our strategies, regular investors must always pay attention to hedge fund and insider trading sentiment, and Paychex, Inc. (NASDAQ:PAYX) applies perfectly to this mantra.

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