Due to the large amounts of money they manage, hedge funds and institutional investors are able to expend vast resources on their research capabilities, allowing them to identify investment opportunities ahead of the crowd. This advantage they have over the general investor, along with their investing acumen helps hedge funds to routinely outperform the markets. Research done by Insider Monkey shows that over a long period of time, the most popular small-cap stocks among hedge funds not only outperform the broader market, but also beat the returns generated by hedge funds’ favorite large-cap stocks by a wide margin. Which is why we at Insider Monkey track over 800 elite hedge funds and institutional investors as part of our small-cap strategy (see more details here). However, among these 800 funds, we pay special attention to a group of about 60 funds which were launched by people who, through decades of exemplary stock picking, have managed to become billionaires. In this article, we are going to analyze the top five stocks which saw a surge in popularity among these billionaire investors during the fourth quarter, which could imply big things ahead.
#5 McDonald’s Corporation (NYSE:MCD)
– Billionaires with Long Positions (as of December 31): 14
– Value of Billionaires’ Holdings (as of December 31): $2.1 billion
Let’s start with McDonald’s Corporation (NYSE:MCD), which had its ownership among the billionaire investors covered by us increase by five during the fourth quarter, amid a greater than 20% rise in its stock during the period. However, the aggregate value of the holdings of these investors in the company declined by $454 million over the quarter, which could be because McDonald’s Corporation (NYSE:MCD)’s stock was trading in a range for nearly four years before the recent rally, so that when it finally broke out of it, long-term investors took the opportunity to book some profits. Led by the better-than-expected numbers the company reported for the fourth quarter, its stock is trading flat in 2016, despite a slump in the broader market. However, some analysts are concerned that the stock has become overvalued, since it is currently trading at a trailing P/E of 24.36, which is significantly above its historical average P/E. Billionaire Daniel S. Och‘s OZ Management reduced its stake in the company by 22% to 5.53 million shares during the fourth quarter.
#4 Synchrony Financial (NYSE:SYF)
– Billionaires with Long Positions (as of December 31): 15
– Value of Billionaires’ Holdings (as of December 31): $1.17 billion
Though its stock ended the fourth quarter in the red, Synchrony Financial (NYSE:SYF) saw an unprecedented rise in its popularity among the billionaire investors covered by us during the period. Billionaire investors with long positions in the stock increased by 13 and the aggregate value of their holdings jumped by a whopping 1,800% during the October-to-December period. Among the funds that initiated a stake in the company during that time was legendary investor George Soros‘ family office Soros Fund Management, which purchased 7.12 million shares. Synchrony Financial (NYSE:SYF)’s investors feel that 2016 will be a rewarding year, for them as the company’s management has indicated that it will start returning capital to them in the form of dividend payments and/or a share repurchase program beginning this year. On February 22, the company got a positive mention in Barron’s, which highlighted that on the back of a strong growth in loans, Synchrony Financial’s stock could soar by 40% this year.