The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Paycom Software Inc (NYSE:PAYC).
Is PAYC stock a buy? The best stock pickers were cutting their exposure. The number of long hedge fund positions were cut by 3 lately. Paycom Software Inc (NYSE:PAYC) was in 35 hedge funds' portfolios at the end of December. The all time high for this statistic is 38. Our calculations also showed that PAYC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 38 hedge funds in our database with PAYC positions at the end of the third quarter.
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 124 percentage points since March 2017 (see the details here).
Ken Fisher of Fisher Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's go over the fresh hedge fund action regarding Paycom Software Inc (NYSE:PAYC).
Do Hedge Funds Think PAYC Is A Good Stock To Buy Now?
At Q4's end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in PAYC a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Paycom Software Inc (NYSE:PAYC) was held by Fisher Asset Management, which reported holding $107.6 million worth of stock at the end of December. It was followed by Fundsmith LLP with a $97.2 million position. Other investors bullish on the company included Cat Rock Capital, SQN Investors, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Cat Rock Capital allocated the biggest weight to Paycom Software Inc (NYSE:PAYC), around 8.87% of its 13F portfolio. Provenire Capital is also relatively very bullish on the stock, dishing out 5.46 percent of its 13F equity portfolio to PAYC.
Judging by the fact that Paycom Software Inc (NYSE:PAYC) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of funds that decided to sell off their positions entirely by the end of the fourth quarter. At the top of the heap, Jack Woodruff's Candlestick Capital Management said goodbye to the largest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $40.5 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $21 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds by the end of the fourth quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Paycom Software Inc (NYSE:PAYC) but similarly valued. These stocks are Sun Life Financial Inc. (NYSE:SLF), Li Auto Inc. (NASDAQ:LI), StoneCo Ltd. (NASDAQ:STNE), Best Buy Co., Inc. (NYSE:BBY), State Street Corporation (NYSE:STT), Delta Air Lines, Inc. (NYSE:DAL), and Suncor Energy Inc. (NYSE:SU). This group of stocks' market values resemble PAYC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLF,19,87210,6 LI,31,497858,5 STNE,47,3628999,9 BBY,38,975177,-2 STT,31,502936,-3 DAL,58,1058704,15 SU,25,686120,3 Average,35.6,1062429,4.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $1062 million. That figure was $749 million in PAYC's case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 19 bullish hedge fund positions. Paycom Software Inc (NYSE:PAYC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PAYC is 50.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and surpassed the market again by 0.4 percentage points. Unfortunately PAYC wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); PAYC investors were disappointed as the stock returned -16.7% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.