AIG, Citigroup, Bank of America: Hedge Funds Love These Financial Stocks

Investors have generally been looking down on the financial sector for some time, but our review of recent 13F filings by hedge funds and other notable investors generally shows movement towards financial stocks. With one popular pick surging into the #3 spot on the list of the most popular stocks among hedge funds (see the full rankings), finance and insurance companies now compose half of the top ten list. Here are hedge funds’ favorite financial stocks for the third quarter of 2012:

David Tepper

American International Group, Inc. (NYSE:AIG) was one of the hottest stocks in the hedge fund community during the last quarter, with 110 filers in our database reporting a position at the end of September. This was up from 61 filers three months earlier. AIG is tempting for value investors given that it trades at half the book value of its equity, and at only 9 times forward earnings estimates. Billionaire David Tepper’s Appaloosa Management was one of the funds initiating a position during the third quarter (see more of billionaire David Tepper’s stock picks).

Citigroup Inc. (NYSE:C) was hedge funds’ favorite big bank with 93 funds owning the stock. Like AIG, it’s often seen as a failed, bailed-out company; like AIG, its P/B is quite low, at 0.6 in this case. Billionaire George Soros hadn’t owned the stock at the beginning of the quarter, but had 1.5 million shares in his 13F portfolio at the end of September (find more stocks that George Soros has been buying).

85 hedge funds and other notable investors reported a position in Bank of America Corp (NYSE:BAC). Bank of America is even cheaper than Citi on a book basis, but the stock’s rally has left its P/E multiples not looking particularly strong- even against peers in the industry that are generally considered more safe. Its business has also been down recently.

Hedge funds also liked JPMorgan Chase & Co. (NYSE:JPM), with ownership ticking up slightly to 83 funds. JPMorgan Chase trades at a substantial discount to book value, and at only 9 times trailing earnings. With its earnings up 34% last quarter versus a year earlier, it looks attractive- perhaps not quite as cheap as say Citigroup, but likely meriting a premium due to its perception as a somewhat safer bank.

The final financial stock to make the top ten list was Wells Fargo & Company (NYSE:WFC), with hedge fund ownership broadening from 72 filers at the end of June to 81 three months later. Wells’s P/B ratio is 1.2, reflecting a good deal of investor confidence in the company’s books, but on an earnings basis it’s a good match for the other big banks.

There was a bit of a drop to the 58 filers in our database who owned Capital One Financial Corp. (NYSE:COF). Capital One is a credit card company, but those credit cards are backed by Capital One Bank. The company’s revenue and earnings were up in the third quarter compared to Q3 2011, and the trailing P/E is only 10.

52 funds reported owning Goldman Sachs Group, Inc. (NYSE:GS). Goldman has been regularly beating earnings estimates, and considering that the forward P/E is only 9 we think that the investment bank is worth a look. Goldman, like many of these other financials, is priced at a discount to book value and while this is somewhat justified (particularly given uncertainty over Europe) the writedowns required to make the stock overvalued would have to be quite large.

Funds generally sold out of Morgan Stanley (NYSE:MS) but 45 filers in our database still had a position at the end of the third quarter. Morgan Stanley is more troubled than its peer Goldman: revenue was down sharply last quarter from its levels in the third quarter of last year. However, its P/B is 0.5 and it’s another possible- possible!- value stock.

American Express Company (NYSE:AXP) was owned by 42 hedge funds according to our analysis. We’d note that its services span credit and charge cards as well as travel services, possibly explaining its trailing P/E of 13 as investors like that business mix. The company’s numbers have been very stable over the last year.

Rounding out the list was life insurer Metlife Inc (NYSE:MET). Metlife has been taking hits to revenue, and trades at 13 times trailing earnings, but Wall Street analysts expect a rebound: the forward P/E is only 6 and the five-year PEG ratio is 0.5.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!