27 Out of Favor Stocks That Hedge Funds and Analysts Love

Stock prices can be depressed for prolonged periods of time. Investing in these out of favor stocks might be extremely profitable if investors aren’t too early. Insider Monkey, your source for free insider trading data, compiled the list of 27 stocks that had negative returns during the past 12 months but are currently favored by Wall Street analysts and hedge funds.

FAIRHOLME (FAIRX) Bruce Berkowitz

The analysts’ target prices are sourced from Bloomberg. The stocks are ranked based on the expected 12-month gain in stock prices. Some of these out of favor stocks have already started to take off and have had significant returns so far in 2011. Micron (MU) and RRD are among these names, but most of the other stocks have negative returns this year. Here are analysts and hedge funds’ favorite out of favor stocks:

Company Ticker Last Price Analysts’ Target No of Hedge Funds
BANK OF AMERICA BAC 12.42 18.12 42
SOUTHWEST AIR LUV 11.55 16.75 8
CISCO SYSTEMS CSCO 16.73 23.34 33
GOOGLE INC-CL A GOOG 526.84 734.32 43
MICRON TECH MU 10.42 14.48 13
HEWLETT-PACKARD HPQ 39.75 54.35 25
MICROSOFT CORP MSFT 25.08 33.68 50
RR DONNELLEY & RRD 18.84 25 10
CITIGROUP INC C 4.42 5.74 56
CARNIVAL CORP CCL 37.55 48.42 18
INTEL CORP INTC 19.62 25.18 17
US STEEL CORP X 50.49 64.57 9
AFLAC INC AFL 51.58 65.77 10
BEST BUY CO INC BBY 29.22 36.94 15
VISA INC-CLASS V 75.68 95.65 24
ROBERT HALF INT RHI 29.22 36.91 5
MEDCO HEALTH SO MHS 55.97 70.57 17
CORNING INC GLW 19.49 24.53 12
STAPLES INC SPLS 20.09 25.27 10
GANNETT CO GCI 15.39 19.33 12
METLIFE INC MET 43.37 54.45 10
STATE ST CORP STT 44.67 56 17
TARGET CORP TGT 50.27 62.76 19
INTL GAME TECH IGT 15.87 19.58 10
DR HORTON INC DHI 11.67 14.31 12
FEDEX CORP FDX 91.96 112.29 19
AMGEN INC AMGN 55.22 66.12 13

Bank of America tops the list with an expected 46% return in the next 12 months. Nearly a quarter of the 175 hedge funds we follow had large positions in BAC at the end of December. John Paulson’s Paulson & Co and Bruce Berkowitz’s Fairholme each had more than $1 Billion invested in BAC. Citigroup is the only other banking stock that is at the top of the list.

The top of the list is dominated mainly by mega-cap technology stocks. Cisco, Google, Hewlett-Packard, Microsoft, and Intel are extremely favored by hedge funds and Wall Street analysts. All of these stocks are among the 12 technology stocks that hedge funds love. Unfortunately all of them had negative returns so far in 2011.

We believe these 27 stocks as a group have value characteristics and will outperform the market over the next year or two.

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