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Insider Monkey follows hedge fund managers because they're the smartest investors around. They leave less to chance than most investors. They go great lengths to get an “edge” over ordinary investors. Hedge fund managers also have the resources to do extensive research on public companies and they have access to experts who can guide them. We believe we are more likely to beat the market by imitating insiders and hedge funds than trading against them. Based on the transactions of nearly 700 hedge funds compiled by Goldman Sachs in May, we presented the list of top 10 stocks that hedge funds are buying like crazy. Investors who bought these stocks returned 3.2% between May 17th and July 8th, vs. 1.4% return for the SPY. Here is how each stock performed:

Company

Ticker

Return

APPLE INC

AAPL

7.9%

CITIGROUP INC

C

2.1%

C I T GROUP INC NEW

CIT

1.8%

GOOGLE INC

GOOG

2.6%

JPMORGAN CHASE & CO

JPM

-4.4%

LYONDELLBASELL INDUSTRIES

LYB

7.3%

MICROSOFT CORP

MSFT

10.3%

PFIZER INC

PFE

-3.9%

QUALCOMM INC

QCOM

5.1%

SMURFIT STONE CONTAINER

SSCC

5.1%

As can be seen from the table, eight of these 10 stocks managed to beat the S&P 500 index. Microsoft was the top performer among these 10 names. Microsoft was owned by 54 hedge funds as a top 10 holding at the end of March. Hedge funds collectively own 2% of the outstanding shares. Jim Simons’ Renaissance, David Tepper’s Appaloosa, Leon Cooperman’s Omega Advisors, and David Einhorn’s Greenlight are some of the hedge funds that are bullish about Microsoft. Actually, David Einhorn made a presentation at the Ira Sohn Investment Conference explaining why he thinks Microsoft is a great investment (Read the transcript of Einhorn’s presentation here).

Apple Inc. is the second best performer in this list. Sixty three hedge funds had Apple among their top 10 holdings. Hedge funds collectively own 3% of the outstanding shares. Hedge fund stars like David Einhorn, John Griffin, Chase Coleman and Dan Loeb all have AAPL in their portfolios (Check out David Einhorn’s other top stock picks).

Lyondellbasell is the third best performer. Thirty hedge funds had LYB among their top 10 holdings. Hedge funds collectively own 13% of the outstanding shares. James Dinan’s York, Howard Marks’ Oaktree and Dan Loeb’s Third Point had large positions in LYB at the end of March.

We were expecting these stocks to outperform index funds and so far they have delivered. Investors are usually skeptical about imitating hedge funds’ top stock picks because there is a 45 day delay in reporting. However, we believe most of these stock picks are long-term stock picks and these stocks will outperform the index funds despite the delay in reporting. We will keep you updated about the performance of these stocks.

Source: 10 Stocks Hedge Funds Are Buying Heavily