Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Automatic Data Processing, Inc. (NASDAQ:ADP) based on that data and determine whether they were really smart about the stock.
Automatic Data Processing, Inc. (NASDAQ:ADP) investors should pay attention to an increase in activity from the world's largest hedge funds lately. Automatic Data Processing, Inc. (NASDAQ:ADP) was in 49 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 57. Our calculations also showed that ADP isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
TUDOR INVESTMENT CORP
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let's take a peek at the recent hedge fund action surrounding Automatic Data Processing, Inc. (NASDAQ:ADP).
What have hedge funds been doing with Automatic Data Processing, Inc. (NASDAQ:ADP)?
At second quarter's end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in ADP over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cedar Rock Capital, managed by Andy Brown, holds the most valuable position in Automatic Data Processing, Inc. (NASDAQ:ADP). Cedar Rock Capital has a $432.3 million position in the stock, comprising 10.5% of its 13F portfolio. The second largest stake is held by D E Shaw, led by D. E. Shaw, holding a $303.7 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish comprise Tim Hurd and Ed Magnus's BlueSpruce Investments, John Overdeck and David Siegel's Two Sigma Advisors and Guardian Capital's GuardCap Asset Management. In terms of the portfolio weights assigned to each position Cedar Rock Capital allocated the biggest weight to Automatic Data Processing, Inc. (NASDAQ:ADP), around 10.52% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, dishing out 7.59 percent of its 13F equity portfolio to ADP.
As aggregate interest increased, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in Automatic Data Processing, Inc. (NASDAQ:ADP). Citadel Investment Group had $30.9 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $23.6 million position during the quarter. The other funds with brand new ADP positions are Seth Cogswell's Running Oak Capital, Paul Tudor Jones's Tudor Investment Corp, and Daniel Beltzman and Gergory Smith's Birch Run Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Automatic Data Processing, Inc. (NASDAQ:ADP) but similarly valued. These stocks are Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Canadian National Railway Company (NYSE:CNI), Colgate-Palmolive Company (NYSE:CL), China Petroleum & Chemical Corp (NYSE:SNP), Equinix, Inc. (REIT) (NASDAQ:EQIX), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Enbridge Inc (NYSE:ENB). This group of stocks' market caps are similar to ADP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position REGN,49,1604372,7 CNI,28,2050472,2 CL,50,1699344,-3 SNP,10,168521,1 EQIX,49,2314147,-6 AMD,51,2569197,-11 ENB,28,379932,3 Average,37.9,1540855,-1 [/table]
As you can see these stocks had an average of 37.9 hedge funds with bullish positions and the average amount invested in these stocks was $1541 million. That figure was $1802 million in ADP's case. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 10 bullish hedge fund positions. Automatic Data Processing, Inc. (NASDAQ:ADP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADP is 81.4. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately ADP wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ADP were disappointed as the stock returned -6.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
