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5 Stocks Hedge Funds Are Absolutely Crazy About

Insider Monkey tracks more than 700 equity hedge funds and around 650 of them disclosed their equity and options positions in publicly traded US stocks recently. 13F filings are excellent sources of investment ideas. Our research has shown that the most popular small-cap stocks among hedge funds outperformed the market by an average of 18 percentage points per year during a back-test covering a 10 year period. There are a lot of investment strategies that perform well in back tests but fail to deliver in real trading. Fortunately our investment approach is still working. We have been forward testing this strategy since the end of August 2012. Its stock picks outperformed the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) by 41 percentage points since then (see the details here).

Barry Rosenstein JANA PARTNERS

Hedge funds’ large cap and concentrated positions also outperform the market but the margins are smaller. Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) are two of the three most popular stocks among hedge funds (see the 10 most popular stocks) but hedge funds don’t own a large percentage of these stocks’ outstanding shares. In this article we will focus on stocks that are owned by at least 65 hedge funds and hedge funds own a large percentage of outstanding shares.

Equinix Inc (NASDAQ:EQIX) tops our list. Sixty nine hedge funds own more than 45% of Equinix Inc (NASDAQ:EQIX)’s outstanding share at the end of 2013. Activist Barry Rosenstein, billionaire John Paulson, and Jeffrey Tannenbaum had nearly $1.5 billion invested in the stock.

Charter Communications, Inc. (NASDAQ:CHTR) is in 79 hedge funds’ portfolio and hedge funds collectively own 42% of Charter’s outstanding shares. Hedge funds were betting on Charter on the expectation that it will be able to gain scale by acquiring Time Warner Cable Inc (NYSE:TWC). John Scully, John Griffin, and Philippe Laffont hold the three largest positions in CHTR among the hedge funds we track.

Dollar General Corp. (NYSE:DG) ranks third in our list. Seventy six hedge funds own more a third of DG’s outstanding shares. Dollar General seems like a “growth at a reasonable price” play. It expects to earn around $3.2 per share in FY 2014 and it is expected to increase its top and bottom lines by around 10% in FY 2015. Billionaire Stephen Mandel is Dollar General’s biggest fan with a $1.14 billion position at the end of December.

Hertz Global Holdings, Inc. (NYSE:HTZ) is in 109 hedge funds’ portfolio. Hedge funds collectively own more than 32% of Hertz’s outstanding shares. Hedge fund manager Phillippe Laffont was recently added to Hertz’s board. “We are fortunate to add a new member to the Hertz Board who has a strong background in identifying and capitalizing on long-term technology trends based on fundamental research,” said Hertz’s chairman and CEO. Laffont’s Coatue doesn’t own any shares in Hertz but activist hedge fund manager Dan Loeb initiated a 1.4% position in the stock during the fourth quarter.

Constellation Brands, Inc. (NYSE:STZ) ranks fifth in our list. Sixty six hedge funds own nearly 31% of STZ’s outstanding shares. The stock has been beating earnings expectations by large margins since it completed the acquisition of Crown Imports this summer. Billionaire Andreas Halvorsen boosted his bet on STZ by more than 150% during the last three months of 2013.

Recommended Reading:

Edward Gilhuly and Sageview Capital’s New Stock Moves

Lance Helfert and Paul Orfalea’s Top Holdings and Latest Sales

New Picks of Steve Cohen’s SAC Capital Advisors

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