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We track around 350 hedge funds because we believe they have an edge over ordinary investors. Hedge funds employ experienced investment professionals and devote significant resources to researching stocks and the markets. During the past decade hedge funds’ top stock picks managed to beat the market by more than 2 percentage points annually. Ordinary investors can benefit from such information simply by imitating the hedge funds.

In this article, we are going to focus on the stocks with the highest upside potential that are popular among the hedge funds we track. All companies have at least $10 billion market cap, average analyst recommendation score lower than 2 (1=strong buy, 2=buy, 3=hold, 4=sell, 5=strong sell), and were held by at least 40 hedge funds tracked by us. The market data is sourced from Finviz.

Company

Ticker

No of HF

Analyst Recom

Apple Inc.

(NASDAQ:AAPL)

125

1.7

Google Inc.

(NASDAQ:GOOG)

96

1.7

Express Scripts Inc.

(NASDAQ:ESRX)

49

1.7

Halliburton Company

(NYSE:HAL)

47

1.7

Visa, Inc.

(NYSE:V)

45

1.7

The Coca-Cola Company

(NYSE:KO)

44

1.7

Union Pacific Corporation

(NYSE:UNP)

41

1.7

JPMorgan Chase & Co.

(NYSE:JPM)

78

1.8

General Motors Company

(NYSE:GM)

71

1.8

Oracle Corporation

(NYSE:ORCL)

53

1.8

Anadarko Petroleum

(NYSE:APC)

48

1.8

Mastercard Incorporated

(NYSE:MA)

46

1.8

Unitedhealth Group, Inc.

(NYSE:UNH)

43

1.8

Freeport-McMoRan

(NYSE:FCX)

42

1.8

Kraft Foods Inc.

(KFT)

42

1.8

CVS Caremark Corporation

(NYSE:CVS)

41

1.8

Pfizer Inc.

(NYSE:PFE)

74

1.9

QUALCOMM Incorporated

(NASDAQ:QCOM)

66

1.9

Williams Companies, Inc.

(NYSE:WMB)

48

1.9

WellPoint Inc.

(NYSE:WLP)

45

1.9

General Electric Company

(NYSE:GE)

44

1.9

Las Vegas Sands Corp.

(NYSE:LVS)

42

1.9

Merck & Co. Inc.

(NYSE:MRK)

42

1.9

Schlumberger Limited

(NYSE:SLB)

42

1.9

Procter & Gamble Co.

(NYSE:PG)

41

1.9

Apple Inc (AAPL) is the most popular stock among hedge funds. According to our statistics, there were 125 hedge funds with AAPL positions in their 13F portfolios at the end of September. The average analyst recommendation score of AAPL is 1.7. AAPL’s performance in the fourth quarter is not as good as the market, but it outperformed the market throughout the year. Since the beginning of this year, AAPL returned 20.93%, while SPY returned only 0.67% in the same period. AAPL’s P/E ratio is also relatively low. The $370 billion market cap stock has a P/E ratio of 14.4. Additionally, AAPL’s earnings are expected to grow at over 20% in the next few years, indicating that the stock is very likely to be trading at a discount currently. Among the 125 hedge funds that are bullish about AAPL, Ken Griffin’s Citadel Investment Group held the largest position of the stock. The fund invested $928 million in AAPL as of September 30.

Google Inc (GOOG) and Oracle Corp (ORCL) are two other mega-cap technology stocks with high upside potential that are popular among hedge funds. At the end of the third quarter, there are 96 hedge funds had GOOG in their portfolios and 53 hedge funds with ORCL in their portfolios. Since then, GOOG returned 2.26%, while ORCL was down 10.43%. Despite the loss, ORCL has a relatively low P/E ratio of 14.6 and the analyst recommendation score for ORCL is 1.8. Ken Fisher’s Fisher Asset Management invested $588 million in ORCL at the end of September, and Stephen Mandel’s Lone Pine Capital invested $483 million in GOOG.

Pfizer Inc (PFE) is also very popular among hedge funds. There are 74 hedge funds with PFE positions in their portfolios at the end of the third quarter. Among them, Ken Fisher’s Fisher Asset Management had the largest position of PFE. At the end of September, the fund reported to own $389 million of the stock. PFE has a market cap of $166B and a P/E ratio of 17.03. It returned 23.60% so far since the end of the third quarter, doubling the 11.41% for SPY in the same period.

Other mega-cap stocks with high upside potential that are popular among hedge funds include Coca-Cola Company (KO), JPMorgan Chase & Co (JPM), General Electric Company (GE), Merck & Co Inc (MRK) and Procter & Gamble Co (PG). The fact that both analysts and hedge funds are bullish about these stocks on average indicates that these stocks have potential to grow in the future. Furthermore, we think a portfolio of these 25 stocks is diversified enough for investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 25 Popular Hedge Fund Stocks With The Highest Upside Potential