Billionaires Were Selling Out of Yelp, Morgan Stanley, and 3 Other Stocks in Q1

Billionaire hedge fund managers such as Jim Simons and David Einhorn have become exceptionally rich thanks to their investing abilities over the long-term, which naturally includes an ability to adapt to changing trends within individual companies, sectors, and the overall economy. Needless to say, it appears to be a good idea to pool their expertise and have a look at the equity positions of only this select group of wealthy money managers. Mr. Einhorn of Greenlight Capital said a few years ago that “It doesn’t make sense to blindly follow me or anyone else into a stock. … Do your own work,” but of course it’s not possible for a retail investor to do the work that Mr. Einhorn and his team are capable of doing, so while the spirit of this quote may have some wisdom, it’s also lacking practicality and let’s face it, is a little self-serving. After all, his investors follow his moves blindly as it were, so why shouldn’t anyone else? Hedge fund holdings are a crucial piece of information that one needs to incorporate in his or her stock analysis process and for that reason, Insider Monkey will lay out a list of five stocks that billionaire asset managers heavily discarded during the first quarter of 2016.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5. Yelp Inc. (NYSE:YELP)

– Billionaires with long positions (as of March 31): 4

– Aggregate value of billionaires’ holdings (as of March 31): $238.89 Million

The number of billionaire hedge fund managers tracked by Insider Monkey with stakes in Yelp Inc. (NYSE:YELP) declined to four from eight during the first three months of 2016. However, the overall value of those stakes registered a much smaller decline, dropping to $238.89 million from $283.97 million quarter-over-quarter. The operator of online review site yelp.com has seen its shares gain 26% in the past three months, but the stock continues to trade 9% in the red for the year. While the website’s desktop unique visitors for the first three months of 2016 declined to 77.43 million from 79.54 million, mobile website unique visitors jumped to 68.55 million from 62.92 million. Meanwhile, Yelp’s total net revenue for the quarter climbed by 34% year-over-year to $158.61 million. The company’s revenue growth rates have declined in recent quarters due to the maturation of its business and the decline in the number of major geographic markets that have not yet been conquered. Lee Ainslie’s Maverick Capital owns 5.43 million shares of Yelp Inc. (NYSE:YELP) as of March 31.

#4. Ally Financial Inc. (NYSE:ALLY)

– Billionaires with long positions (as of March 31): 4

– Aggregate value of billionaires’ holdings (as of March 31): $1.16 Billion

Ally Financial Inc. (NYSE:ALLY) also fell out of favor with the billionaires monitored by our team during the first quarter of the year, as the number of them invested in the company decreased to four from nine during the quarter. Meanwhile, the aggregate value of those managers’ equity investments in Ally Financial shrank to $1.16 billion from $1.26 billion quarter-over-quarter. The former financing arm of General Motors Company (NYSE:GM) currently focuses on two primary markets: auto-lending and direct online banking. Auto finance and consumer finance stocks such as Ally Financial have been trading at huge discounts due to investor worries over credit risks, but Jefferies analysts believe the company “trades at attractive valuation levels” when benchmarking to other industry peers. Ally shares are down by 3% thus far in 2016. Stephen Feinberg’s Cerberus Capital Management had 41.52 million shares of Ally Financial Inc. (NYSE:ALLY) in its portfolio at the end of March.

Three more stocks that billionaire hedgies were selling out of during the first quarter are discussed on the following page.

#3. Union Pacific Corporation (NYSE:UNP)

– Billionaires with long positions (as of March 31): 4

– Aggregate value of billionaires’ holdings (as of March 31): $172.34 Million

There were four billionaires in our system with long positions in Union Pacific Corporation (NYSE:UNP) at the end of the March quarter, compared to nine registered at the end of the prior quarter. The value of those positions also plunged massively, to a mere $172.34 million on March 31 from $698.57 million at the end of 2015. The railroad operator has seen its market value gain 7% since the beginning of 2016 despite operating in a challenging environment. Union Pacific Corporation’s freight revenue declined by $749 million in the first quarter of 2016 to $4.50 billion due to a decline in volume and average revenue per car. Low energy prices continued to have a negative impact on the demand for coal and shale-related products during the quarter. What’s more, the declines in coal, frac sand, crude oil, and pipe shipments have been accompanied by declines in the volume of grain, metal and intermodal being transported. First Eagle Investment Management, run by Mehdi Mahmud, reported ownership of 5.72 million shares of Union Pacific Corporation (NYSE:UNP) in the latest round of 13F filings.

#2. Morgan Stanley (NYSE:MS)

– Billionaires with long positions (as of March 31): 3

– Aggregate value of billionaires’ holdings (as of March 31): $153.31 Million

Morgan Stanley (NYSE:MS) has lost its appeal among the money managers with ten-figure fortunes tracked by Insider Monkey, as the number of billionaires invested in the investment bank dropped to three from nine during the first quarter. Correspondingly, the overall value of those billionaires’ equity holdings in Morgan Stanley fell to $153.31 million from $605.62 million quarter-over-quarter. The global financial services company that holds leading market positions in each of its business segments, which include Institutional Securities, Wealth Management and Investment Management, has seen its shares drop by 13% since the start of the year. Morgan Stanley posted net revenue of $7.79 billion for the first quarter of 2016, down significantly from $9.91 billion recorded a year earlier. Meanwhile, the bank’s net income dropped to $1.13 billion, less than half the $2.39 billion figure that it reported for the first quarter of 2015. Ken Heebner’s Capital Growth Management upped its Morgan Stanley (NYSE:MS) stake by 16% during the January-to-March period, to 4.04 million shares.

#1. Marathon Petroleum Corp (NYSE:MPC)

– Billionaires with long positions (as of March 31): 6

– Aggregate value of billionaires’ holdings (as of March 31): $803.58 Million

The number of billionaires invested in Marathon Petroleum Corp (NYSE:MPC) fell to six from 13 during the March quarter, while the value of those billionaires’ stakes in the company plunged to $803.58 million from $1.92 billion. The independent petroleum refining company has seen its shares decline by 32% since the start of 2016, mainly due to weakness in gasoline cracks and capture. However, analysts at Deutsche Bank believe Marathon Petroleum has the most upside among its peers should the crude price environment normalize, so the stock represents an attractive play for longer-term-oriented investors. The company’s refining and marketing revenue for the first quarter of 2016 dropped to $10.57 billion, down heavily from $15.38 billion recorded in the same period of the prior year. Shares of Marathon Petroleum are priced at around 8.1-times expected earnings, versus the forward P/E multiple of 10.5 for the oil and gas refining and marketing sector. Dmitry Balyasny’s Balyasny Asset Management owns 4.27 million shares of Marathon Petroleum Corp (NYSE:MPC) as of the end of March.

Disclosure: None