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 900 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 Paycom Software Inc (NYSE:PAYC).
Paycom Software Inc (NYSE:PAYC) was in 40 hedge funds' portfolios at the end of September. The all time high for this statistic is 46. PAYC shareholders have witnessed an increase in support from the world's most elite money managers in recent months. There were 39 hedge funds in our database with PAYC holdings at the end of June. Our calculations also showed that PAYC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's take a look at the recent hedge fund action surrounding Paycom Software Inc (NYSE:PAYC).
Lee Ainslie of Maverick Capital
Do Hedge Funds Think PAYC Is A Good Stock To Buy Now?
At third quarter's end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 38 hedge funds with a bullish position in PAYC a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Echo Street Capital Management held the most valuable stake in Paycom Software Inc (NYSE:PAYC), which was worth $232.1 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $129.3 million worth of shares. Fisher Asset Management, Cat Rock Capital, and Fundsmith LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Cat Rock Capital allocated the biggest weight to Paycom Software Inc (NYSE:PAYC), around 10.3% of its 13F portfolio. Alta Park Capital is also relatively very bullish on the stock, earmarking 4.46 percent of its 13F equity portfolio to PAYC.
As industrywide interest jumped, some big names have been driving this bullishness. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, assembled the most outsized position in Paycom Software Inc (NYSE:PAYC). Senator Investment Group had $29.7 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker's Woodline Partners also made a $21.2 million investment in the stock during the quarter. The following funds were also among the new PAYC investors: Charles Clough's Clough Capital Partners, David Fiszel's Honeycomb Asset Management, and Lee Ainslie's Maverick Capital.
Let's now review hedge fund activity in other stocks similar to Paycom Software Inc (NYSE:PAYC). We will take a look at ANSYS, Inc. (NASDAQ:ANSS), Fastenal Company (NASDAQ:FAST), ArcelorMittal (NYSE:MT), Ecopetrol S.A. (NYSE:EC), Ball Corporation (NYSE:BLL), Lennar Corporation (NYSE:LEN), and Fifth Third Bancorp (NASDAQ:FITB). This group of stocks' market caps match PAYC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANSS,38,1493156,-8 FAST,30,609114,5 MT,20,1012692,-2 EC,6,64885,0 BLL,27,1457074,-17 LEN,50,1706131,0 FITB,28,283754,-13 Average,28.4,946687,-5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $947 million. That figure was $1425 million in PAYC's case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Ecopetrol S.A. (NYSE:EC) is the least popular one with only 6 bullish hedge fund positions. Paycom Software Inc (NYSE:PAYC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PAYC is 70.7. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately PAYC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on PAYC were disappointed as the stock returned -11.8% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.