Adage Capital's Favorite Stock Picks

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Includes: AAPL, BRK.A, C, CE, CF, CVX, ESV, GE, GILD, IBM, IR, JNJ, JPM, KO, MSFT, ORCL, PFE, PG, RTN, SAFM, T, TJX, TYC, WFC, WMB, XOM
by: Insider Monkey

Phillip Gross launched Adage Capital along with Robert Atchinson in 2001. Prior to founding their very own hedge fund, both were renowned employees of Harvard Management Company. Gross spent 18 years at HMC while Atchinson worked there from 1991 to 2001. Currently, Adage Capital’s 13F portfolio is worth $26 billion. Phillip Gross and Robert Atchinson invest in diversified sectors of the economy and do not hold a highly concentrated portfolio.

From Gross’ stock picks it is evident that he is more bullish than bearish about the current market. Recently, in June, he boosted his stake in Sanderson Farms Inc. ((NASDAQ:SAFM)) to 5.7%. We have previously published an article on how Royce & Associates, Martin Whitman’s Third Avenue, and Craig Albert’s Sheffield Asset Management, along with Phil Gross and Robert Atchinson’s Adage Capital, are bullish about $SAFM.

During the second quarter of 2011, Gross reduced Procter & Gamble (NYSE:PG) by 25%, Wells Fargo & Co (NYSE:WFC) by 22% and AT&T (NYSE:T) by 21%. Since the end of June, AT&T lost 6%, P&G (PG) was even, and Wells Fargo & Co (WFC) lost 14%. During the same quarter he also reduced Microsoft (NASDAQ:MSFT) by 13%, JPMorgan Chase (NYSE:JPM) by 16%, and Berkshire Hathaway (BRK-A) by 13%. All had negative returns since the end of the second quarter. Here are Phillip Gross’ stock picks at the end of June:

Company

Ticker

Value (x1000)

Activity

Return Since June

EXXON MOBIL CORP

XOM

584123

-2%

-9%

APPLE INC

AAPL

488266

1%

11%

TYCO INTERNATIONAL

TYC

358913

28%

-19%

GENERAL ELECTRIC CO

GE

342150

-4%

-18%

COCA COLA CO

KO

325343

31%

3%

A T & T INC

T

318179

-21%

-6%

JOHNSON & JOHNSON

JNJ

314416

103%

-2%

CHEVRON CORP NEW

CVX

311674

-4%

-5%

PFIZER INC

PFE

297749

2%

-10%

RAYTHEON CO

RTN

291991

667%

-17%

INTL BUSINESS MACHS

IBM

273216

-2%

-4%

CITIGROUP INC

C

262869

52%

-34%

WILLIAMS COS

WMB

242803

143%

-16%

INGERSOLL RAND PLC

IR

233646

1525%

-36%

MICROSOFT CORP

MSFT

227897

-13%

-4%

JPMORGAN CHASE

JPM

211398

-16%

-15%

CELANESE CORP DEL

CE

210957

42%

-24%

T J X COMPANIES

TJX

200008

589%

5%

GILEAD SCIENCES INC

GILD

198410

-1%

-6%

PROCTER & GAMBLE

PG

197509

-25%

0%

BERKSHIRE HATHAWAY

BRK.A

195288

-13%

-11%

ORACLE CORP

ORCL

195271

-3%

-20%

WELLS FARGO & CO

WFC

188807

-22%

-14%

C F INDUSTRIES

CF

183483

-2%

27%

E N S C O PLC

ESV

182390

21%

-19%

Click to enlarge

Exxon Mobil Corp. is the largest holding in Adage Capital’s 13F portfolio. Gross had $584 million shares of XOM as of June. During the second quarter Gross cut his fund’s Exxon Mobil stake by 2%. Since the end of June, XOM lost 9%. Phillip Gross’ Adage Capital has the largest stake in the company among the 300+ funds we are tracking. The second largest stake is held by Ken Fisher’s Fisher Asset Management. During the second quarter, Fisher increased his stake in Exxon by 2% (check out billionaire Ken Fisher’s stock picks).

Gross boosted his fund’s stake in Citigroup by more than 50% during the second quarter. Despite many investors being bullish about Citigroup, the stock lost 34% since the end of June. Bruce Berkowitz’s Fairholme had a $1 billion stake in Citigroup at the end of second quarter. He is the second largest stakeholder of Citigroup (see Bruce Berkowitz’s recent stock picks).

Phillip Gross extensively increased his stake in Ingersoll Rand by 1525% during the second quarter. Adage Capital had $234 Million in IR at the end of the second quarter. Unfortunately, Ingersoll Rand has lost 40% since the end of June. However, he is not the only optimistic fund manager about Ingersoll Rand. During the second quarter, Steven Cohen also increased his stake in the company by 1212%. He was the second largest stake holder of the company (view Steven Cohen’s favorite stocks).

Apple is Adage’s second largest position with nearly $500 Million invested at the end of June. Apple is the most popular stock among hedge funds (see the 10 most popular stocks among hedge funds). A whopping 103 hedge funds had Apple in their portfolios at the end of last quarter. Hedge funds collectively own 3.3% of the outstanding shares. The stock returned 10.5% so far in 2011. Hedge fund stars like David Einhorn, John Griffin, and Chase Coleman all have AAPL in their portfolios.

Gross also had very large stakes in conservative stocks like KO, PG, and JNJ which tend to outperform the S&P 500 index in down markets. Adage’s top stock picks managed to outperform the market by 2.6 percentage points since June. These stocks lost 9.2% vs. an 11.8% decline by SPY. We believe investors can minimize their loss during this market turmoil by imitating Phillip Gross’ stock picks.

Disclosure: I am long T, C, MSFT.