The latest 13F filings, which tell us what hedge fund managers were doing in the previous quarter, reveal several Money Morning picks among the most popular stocks.
In some cases, Money Morning listed these picks as stocks to watch well before the fund managers jumped in. And once you own a stock, it's always great to see the big money pile in behind you to help feed gains.
The buying and selling habits of hedge fund managers have a place on every investor's radar.
The reason? Hedge fund managers usually have access to more information about the companies they buy. Plus, they have the clout to move stock prices.
And then there's the impact of activist investors, who agitate for such moves as break-ups, mergers, or stock buybacks. When one of them targets a stock, the price typically rises.
Given the outsized influence of hedge fund managers, we're always pleased when they agree with us, especially after the fact.
Here's a look at some of the positive hedge fund trends from the third quarter that mirrored several of Money Morning's long-standing stocks to watch:
Hedge Funds Scoop Up Our Stocks to Watch
One key category is stocks that drew the most buying in the quarter. Much of this is new interest in a stock. It gives us the best insight into which stocks fund managers see as winners in the months ahead.
The top stock here was Alibaba Group Holding Ltd. (NYSE: BABA) stock. According to hedge fund tracking site Whalewisdom.com, 12.9% of the funds it follows bought Alibaba stock in the third quarter. No doubt hedge fund buying played a part in the 38% first-day surge of BABA stock. As of today (Monday), Alibaba shares are up 65% from their IPO price.
Money Morning has been bullish on Alibaba since late 2013, long before the IPO. And we still are. I love Alibaba and I love what they stand for," Money Morning Chief Investment Strategist Keith Fitz-Gerald said earlier this month. "I've recommended Alibaba stock for a long time. I think the stock has a long way to go from here, and the company is going to rewrite the Internet."
Hedge fund managers also scooped up several other of Money Morning's favorite stocks to watch...
The total number of hedge fund-owned shares in oil and gas transportation giant Kinder Morgan Inc. (NYSE: KMI) rose 15.25% in the third quarter. The interest in Kinder Morgan was part of a larger fund manager trend toward buying energy stocks. Energy was the leading sector in the third quarter, with $4.4 billion in aggregate buying.
Kinder Morgan has often appeared on Money Morning lists of top dividend stocks to buy. KMI sports a dividend yield of 4.30%.
Healthcare Stocks to Watch
Healthcare had the second-highest amount of hedge fund buying in the quarter, $3.5 billion.
A big healthcare winner last quarter was pharmaceuticals company AbbVie Inc. (NYSE: ABBV). Total shares in ABBV stock rose 12.38% as fund managers sunk $1.9 billion into the company. AbbVie also pushed into the top 25 stocks held by the most number of hedge funds. ABBV is owned by 1,454 funds now.
Abbvie is a stock that Money Morning Executive Editor Bill Patalon first recommended back in 2012 in his Private Briefing service. He's written about the stock often and still considers it a stock to buy. It took a while, but now a lot of hedge funds agree with him.
Another healthcare stock that drew hedge fund attention in the third quarter was drug firm Actavis Plc. (NYSE: ACT). Fund managers poured $1.5 billion into Actavis stock. And the total number of shares owned zoomed 32.64%.
Actavis is a company Money Morning Defense & Tech Specialist Michael A. Robinson got behind earlier this year. In July, he praised the company's deep drug pipeline and 1,000 products on the market, telling Money Morning readers Actavis has "one of the broadest revenue streams in the industry."
Watching the Hedge Fund Favorites
Several top hedge fund holdings maintained their rank, including some frequently recommended by Money Morning's experts.
Apple Inc. (Nasdaq: AAPL) remains the No.1 stock in the top 10 holdings by value. Hedge funds own $348 billion worth of AAPL. That kept Apple comfortably ahead of the $262 billion invested in the No. 2 company on the list, Microsoft Corp. (Nasdaq: MSFT), even though the total number of AAPL share owned fell 3.45%. Shares of MSFT owned inched up 0.96%.
Both companies also happen to be most widely held companies among hedge fund managers. According to Whalewisdom.com, 1,990 hedge funds own AAPL, while 1,874 own MSFT.
And both companies have been Money Morning stocks to watch for more than a year. Money Morning Capital Wave Strategist Shah Gilani recommended both Apple and Microsoft back in July 2013 when sentiment on both was negative. And he still likes both of them.
Finally, there's healthcare product maker Johnson & Johnson (NYSE: JNJ). Total shares of JNJ fell slightly, but like Apple and Microsoft, it remains very popular with hedge funds. Johnson & Johnson & Johnson is No. 5 on the list of holdings by value ($193 billion) and No. 3 on the list of most widely held hedge fund stocks.
Fitz-Gerald recommended JNJ as a solid dividend play back in the spring. Earlier this month Robinson noted that the company's biotech subsidiary, Janssen Pharmaceutical Cos., is showing a lot of promise as well.
An Impressive Track Record: Hedge fund manager Bill Ackman of Pershing Square Holdings is having a terrific 2014. Several of his picks have made gains of more than 30% this year, and one is up more than 90%. This is a powerful pattern...
Follow me on Twitter @DavidGZeiler.
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.