7 Mid-Cap Companies Loved By Hedge Funds

by: Chris Katje


A Wall Street Journal list shows most loved companies by hedge funds.

Looking at the companies with market capitalizations of under $10 billion shows strong growth ahead.

Conversions to REIT and high dividend yields are among the reasons hedge funds love these 7 companies.

The Wall Street Journal recently released a list of the top held stocks by hedge funds. The report tracked 777 hedge funds with a combined $1.9 trillion in assets under management. While the list included several favorite stocks, it also included several companies with market capitalizations under $10 billion that are worth a look for investors.

The list includes the top 45 stocks held by hedge funds. That list was topped by Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL). Google was in the top ten holdings of 58 of the tracked hedge funds making up an average weighting of 6%. Apple was found in the top ten of 51 of the hedge funds, with an average weighting of 8%. Of the 45 tracked stocks, 10 had a market capitalization of over $100 billion, while 19 had a market capitalization of over $50 billion. The real value in the list lies with the mid cap stocks listed below that are loved by hedge funds.

NorthStar Realty Finance (NRF)

Top ten holding: 25 hedge funds

Average weighting: 7%

Share price: $15.77

52-week range: $8.14 to $17.93

Dividend yield: 6.3%

1-year return: +71%

Year-to-date return: +15%

2014 estimates (from Yahoo Finance): $0.74, $331.8 million (-48%)

2015 estimates: $1.30, $410.9 million (+24%)

NorthStar is a REIT engaged in commercial multifamily and healthcare facilities. In the recently reported quarter, cash available for distribution was $0.28. The company declared a cash dividend of $0.25. The company has been busy with a total of $2.7 billion in committed investments. The company acquired a hotel portfolio and a healthcare company to further growth and sales.

The $1 billion hotel acquisition is from Chatham Lodging Trust (NYSE:CLDT) that includes 47 upscale extended stay hotels. NorthStar paid $213 million for a 90% ownership in the Chatham properties. These properties have an average yield of 18%. The $1.1 billion healthcare acquisition includes 8500 beds and an average yield of 12%. This deal included 160 properties in 14 states. There is fixed rent escalators on these properties in the 2 to 3% range, providing additional growth and earnings down the road for NorthStar.

At the end of March, NorthStar had $12 billion in assets under management. The real estate portfolio is worth $6.2 billion, with healthcare and hotel segments making up big stakes of $1.6 billion and $1.0 billion after the acquisitions. The asset management business, which had assets of $2.2 billion in March is being spun off by the company.

NorthStar has growth through acquisitions and strong rent payments from its properties. Hedge funds have seen a nice return of 71% over the last 52 weeks. The company is estimated to see earnings per share drop to $0.74 in the current fiscal year, down from the $1.30 earned last year. The 6% yield is nice, but it would be great to see earnings growth return.

Visteon Corporation (NYSE:VC)

Top ten holding: 21 hedge funds

Average weighting: 9%

Share price: $92.24

52-week range: $58.02 to $93.51

Dividend yield: N/A

1-year return: +44%

Year-to-date return: +14%

2014 estimates (from Yahoo Finance): $2.99, $8.0 billion (+7.6%)

2015 estimates: $4.56, $8.7 billion (+9.3%)

Visteon is one of the top automotive companies in the climate and electronics segments. Visteon recently sold off its interiors business to focus on its strengths. The company also acquired the electronics business from Johnson Controls (NYSE:JCI) for $265 million.

Visteon has strong relationships with Hyundai-Kia and Ford, which made up 34% and 26% of first quarter sales respectively. The Asian segment made up 49% of first quarter sales. The climate business segment saw sales of $1.3 billion, while electronics sales made up $439 million of total sales. The soon to be sold interiors segment saw first quarter sales of $303 million.

The electronics segment is growing and features high growth technology items like 3D gesture recognition and several collaborations with 3M (NYSE:MMM). The collaborations are the growth market bike, growth market car, and X-wave.

Visteon has a market capitalization of $4 billion and has a share buyback plan of up to $1 billion, with a $500 million accelerated buyback plan. This would retire almost 25% of current shares outstanding. The company is guiding for fiscal year sales to hit $7.8 billion, below consensus estimates. Earnings per share are guided for a range of $2.21 and $3.09. Visteon looks like a strong company with a focus on high margin items in the climate and electronics field. Strong relationships with car companies seeing strong sales is a great start and the upside in the electronics market continues to grow.

American Realty Capital (ARCP)

Top ten holding: 20 hedge funds

Average weighting: 9%

Share price: $12.30

52-week range: $12.13 to $17.170

Dividend yield: 8.1%

1-year return: -26%

Year-to-date return: -4%

2014 estimates (from Yahoo Finance): $1.12, $1.3 billion (+489%)

2015 estimates: $1.21, $1.6 billion (+24%)

American Realty is a favorite of hedge funds thanks to its high yield and monthly dividend income. The company is the largest publicly traded net lease REIT. American Realty has 3809 properties across 49 states, Washington D.C. and Puerto Rico.

American Realty has a huge portfolio and recently reported an amazing occupancy rate of 99.7%. The company competes in 92 industries. One of the biggest strengths is the company's average remaining lease term of 10.8 years, which provides steady income going forward.

The key piece for American Realty is that the company was the big winner in Darden's (NYSE:DRI) recent sale of Red Lobster. American Realty acquired $1.5 billion in Red Lobster real estate that it will rent back to the restaurant chain. To finance the deal, American Realty sold a block of multi-tenant shopping centers to Blackstone. The Red Lobster properties have a higher rent rate, making the swap out a better deal for revenue and earnings that shareholders will see for years to come.

Shares of American Realty have been beaten down over the last year, but the company remains the biggest in its industry. The strong occupancy rate and recent acquisitions will power earnings going forward. Shares trade at 10 times next year's estimated earnings per share. Revenue is growing substantially and the monthly dividends are a nice reward for hedge funds that hold the company in their portfolios. This is definitely a company for investors looking for yield and growth to look further into.

Lamar Advertising (NASDAQ:LAMR)

Top ten holding: 19 hedge funds

Average weighting: 6%

Share price: $50.10

52-week range: $41.30 to $54.48

Dividend yield: 6.6%

1-year return: +2%

Year-to-date return: -3%

2014 estimates (from Yahoo Finance): $1.14, $1.3 billion (+3%)

2015 estimates: $1.49, $1.3 billion (+3%)

Lamar operates in the boring billboard advertising market. The company owns 145,000 billboards in 44 states, Canada, and Puerto Rico. Aside from billboards, Lamar also has 120,000 logo advertisements and 38,000 transit advertising displays.

In the first quarter, sales grew 3% to $285 million. The company is seen by analysts putting in 3% growth in each of the next two fiscal years. The company offers a nice dividend of 6.6%, which is the likely reason why hedge funds are holding the stock. The other big reason is an upcoming conversion to a REIT, which could return more to shareholders and unlock some value for the stock. The company is worth a look for the REIT conversion and the high yield.

Assured Guaranty (NYSE:AGO)

Top ten holding: 18 hedge funds

Average weighting: 7%

Share price: $24.86

52-week range: $17.80 to $26.76

Dividend yield: 1.8%

1-year return: +9%

Year-to-date return: +7%

2014 estimates (from Yahoo Finance): $2.60, $558 million (-26%)

2015 estimates: $2.52, $515 million (-8%)

It's not great to see a big holding showing declines in earnings per share and revenue for the next two years. Assured is a credit protection company that provides services to U.S. public finance, global infrastructure, reinsurance, and consulting. The company is one of the biggest players in the municipal bond markets.

In the first quarter, net income hit was a reported $0.23, down from last year's $0.74. Adjusted book value rose to $49.79 per share. The company is seeing declining sales and earnings, which would make me hesitant to get involved with.

United Rentals (NYSE:URI)

Top ten holding: 18 hedge funds

Average weighting: 5%

Share price: $99.89

52-week range: $44.85 to $99.95

Dividend yield: N/A

1-year return: +75%

Year-to-date return: +31%

2014 estimates (from Yahoo Finance): $6.46, $5.6 billion (+12%)

2015 estimates: $8.09, $6.1 billion, (+9%)

United Rentals is one of the biggest growth stocks on this list. Shares hit an all-time high of $99.95 during Friday's trading session. The company is one of the largest equipment rental companies in the nation with a focus on large equipment and HVAC equipment. With over 870 locations in the United States and Canada, United Rental has a strong presence in many key regions.

The growth for United Rentals was helped by a merger in 2011 that united the company with RSC Holdings. This created the leading North American equipment rental company. Since that time United has also acquired other companies to further its growth and national expansion.

In May, United agreed to acquire Blue Steam services, an equipment rental company with 4 locations in Texas and Louisiana. This further strengthens the company's presence in the power and HVAC market in the region. Earlier in April, United announced the acquisition of National Pump, which makes United the second largest pump rental provider in North America. The deal for $780 million provides United with higher margin business and will create strong opportunities. United said it can't wait to "move forward with cross-selling to our combined customer base."

First quarter rental revenue increased 9.7% for United Rentals. The company is guiding for full year revenue to hit $5.45 to $5.65 billion, which is close to what analysts see. Earnings are growing at substantial rates and revenue continues to grow at double digit rates. Despite an all-time high share price, United does not have a huge multiple from the $8.09 in earnings seen in fiscal 2015.


Top ten holding: 17 hedge funds

Average weighting: 7%

Share price: $196.41

52-week range: $152.82 to $217.13

Dividend yield: N/A

1-year return: -7%

Year-to-date return: +12%

2014 estimates (from Yahoo Finance): $3.58, $2.4 billion (+12%)

2015 estimates: $5.95, $2.7 billion (+11%)

Equinix is a key player in the data center and cloud markets for large companies. The company connects more than 4500 companies from its data center. Key customers include Foursquare, Amazon (NASDAQ:AMZN), Etsy, Box, and Priceline.com (NASDAQ:PCLN). Equinix has more than 100 data centers and continues to grow this key number. The centers can be found in more than 15 countries, across 5 continents. A key area is the more than 32 metro areas with Equinix data centers, which provides close proximity to many large technology companies.

Equinix is a leader and has high marks from customers. The company maintains a 99.99% uptime rate, which is one of the reasons it has a low churn rate and sees strong renewal business. In April, Equinix introduced a cloud exchange, which will increase the company's market in the growing segment.

Equnix barely hit this list, as its market capitalization is closing in on $10 billion, With shares down 7% on the year and only up 12% over the last 52 weeks, investors have a good entry point now. The company saw shares climb on news of a REIT conversion. This is an on-going process, that will likely send shares higher when formalized. A company that pays no dividend growing to a REIT is always a way to boost share prices.

Equinix trades with a high price to earnings multiple. However, earnings per share are growing from $1.89 in fiscal 2013 to an estimated $3.58 in fiscal 2014. In fiscal 2015, earnings are projected to hit $5.95. With strong customer base and recently increased presence in cloud infrastructure, Equinix is a good bet going forward.


The big common themes on this list are conversions to REIT and high dividend payments. Hedge funds love steady income and a chance to boost shares higher through financial moves like selling or acquiring assets, or returning additional funds to shareholders.

Of the list above, my favorite picks are Visteon, American Realty Capital and United Rentals. American Realty Capital provides a strong monthly dividend and I truly believe was the big winner in the Red Lobster sale. United Rentals has grown through acquisitions and trades at a reasonable price to earnings ratio considering its high double digit revenue growth. Visteon is a leader in automotive electronics, which is an area I see growing dramatically in the next decade. This list provides a great entry point for investors to see companies hedge funds love.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ARCP, VC, URI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here