5 Stocks Hedge Funds Love: Starbucks Corporation (SBUX), Barrick Gold Corporation (USA) (ABX), Williams Companies, Inc. (WMB)

Published on March 15, 2013 at 2:20 pm by The Motley Fool in News

After reviewing the hedge fund filings for last quarter, there are five stocks that stood out as being loved by hedge funds. The hedge fund activity in these five stocks were flagged as “unusual” in the sense that they saw a number of major investors that have to disclose their holdings to the SEC quarterly upping their stakes in the company. A few are “under the radar” picks and lesser known to conventional investors, but worth checking out.

Williams Companies, Inc. (NYSE:WMB) is an energy infrastructure company in North America focused on natural gas and natural gas liquids. There are five hedge funds and major investors with Williams in its top ten (as measured by portfolio weighting). There were also twenty investors increasing their positions last quarter. The top hedge fund owner is Viking Global, who has 4.6% of its portfolio invested in the company. Also, the second and third hedge fund owners, Senator Investment and Corvex Capital, increased their stakes by over 150% each during the fourth quarter (see all the hedge funds owning Williams).

One draw to this company is that it can generate solid cash flow and dividend growth for investors. Earlier this year, Williams Companies, Inc. (NYSE:WMB) boosted its annual dividend payment 4.2% and it now yields 3.9%. Management has vowed to continue creating value for shareholders, which includes its commitment to grow its annual dividend by 20% over the next few years.

Following its 2012 spinoff of its exploration assets — WPX Energy — Williams Companies, Inc. (NYSE:WMB) is now a pure play midstream operator with assets ranging from Canadian oil sands to deepwater operations in the Gulf of Mexico. Its key market is natural gas, which I am positive on given the move toward alternative energies, including recent news that billionaire Warren Buffett’s BNSF might be looking to use natural gas to power its railcars.

Advance Auto Parts, Inc. (NYSE:AAP) is one of the largest auto parts retailers in the U.S. Advance had five major investors with the company in its top ten, and seventeen investors upping their stakes. Some of Advance’s recent initiatives to differentiate itself from other auto parts retailers includes store remodeling and nationwide advertising campaigns.

Advance is also one of the cheapest auto parts retailers in the industry.

O’Reilly 1.96x
AutoZone 1.67x
Advance Auto Parts 0.93x

O’Reilly 16.7x
AutoZone 12.5x
Advance Auto Parts 10x

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is a specialty drug maker, a combination of the 2010 merger of Valeant Pharmaceuticals and Biovail, then the 2012 acquisition of Medicis Pharmaceutical. The Medicis deal is expected to generate synergies and be accretive to 2013 earnings.

This pharma company had six major investors with the company in its top ten. A few notable hedge fund owners include ValueAct, which had 13.3% of its portfolio invested in the company and owned 17.5 million shares. As well, Janus Capital owned 3.8 million shares and Iridian Asset 3.5 million.

One intriguing aspect is the drug company’s diversified revenue portfolio. The company has five segments: U.S. neurology, U.S. dermatology, Canada and Australia, branded generics in Europe, and branded generics in Latin America.

Starbucks Corporation (NASDAQ:SBUX) is the coffee giant, and another of the popular stocks among hedge funds last quarter. There were nineteen major investors upping their stake last quarter, and five had the coffee company in their top ten. The largest hedge fund owner is billionaire Steve Cohen of SAC Capital, this after upping his stake 124% last quarter. Jim Simons and RenTech also took a new position last quarter.

Investors have taken notice of the historically low coffee prices, assuming that it will bode well for the company’s operating performance, yet, Starbucks has the ability to keep its operating margin high regardless of coffee prices (read how here). Other items lifting the stock have been solid earnings results; last quarter, Starbucks Corporation (NASDAQ:SBUX) managed to post EPS results of $0.57, versus $0.50 for the same quarter last year. This was on the back of global same store sales growth of 6% year over year.

Despite being one of the most recognized names in the coffee industry, the company is also focusing on “alternative” beverages with the 2011 purchase of Evolution Fresh and another key move could be Starbucks Corporation (NASDAQ:SBUX)’ purchase of Jamba Juice (read more here).

Barrick Gold Corporation (USA) (NYSE:ABX) was another popular stock among hedge funds last quarter, despite the fourth quarter decline in gold prices…

There were four investors with Barrick Gold Corporation (USA) (NYSE:ABX) in their top ten, and sixteen major investors upping their stakes during the fourth quarter. Major hedge fund investors upping their stakes include First Eagle Investment and Vinik Asset, whereas billionaires D.E. Shaw and Jim Simons are also major shareholders.

Assuming the gold bull market continues, thanks to global economic uncertainty and loose monetary policy by central banks, gold miners should perform well over the interim. The gold miner has a relatively geographically diverse product stream, with around 40% of reserves in North America, 40% in South American and 10% in Australia and Africa each. The gold miner also pays a 2.7% dividend yield.

Don’t be fooled

It appears that hedge funds and other notable investors are encouraged by the initiatives that Williams has made to return capital to shareholders, a steady income play with an almost 4% dividend yield. As well, Advance is a solid play on the rising age of cars on the road, over 11 years old. Advance is the biggest and quite possibly the best auto retailer (read more about why). Valeant could prove to be a robust growth play in the pharma space, while Starbucks Corporation (NASDAQ:SBUX) is undoubtedly a solid play on the coffee industry. What I believe to be one of the best bets among the five is the gold miner, Barrick Gold Corporation (USA) (NYSE:ABX). This gold company should continue to perform well amidst low interest rates and an uncertain global economy.

The article 5 Stocks Hedge Funds Love originally appeared on Fool.com and is written by Marshall Hargrave.

NYSE:AAP NYSE:ABX NYSE:VRX NYSE:WMB NASDAQ:SBUX Starbucks Corp (SBUX)Barrick Gold Corp. (ABX)Williams Companies Inc (WMB)Advance Auto Parts Inc. (AAP)Valeant Pharmaceuticals International Inc. (VRX)Show more...Show less

5 Stocks Hedge Funds Love: Starbucks Corporation (SBUX), Barrick Gold Corporation (USA) (ABX), Williams Companies, Inc. (WMB)

Published on March 15, 2013 at 2:20 pm by The Motley Fool in News

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