Hedge Funds Are Doubling Down On These Five Stocks

Our analysis of the latest round of 13F filings has shown a number of stocks that saw increased interest from hedge fund managers, that more than doubled the value of hedge funds’ holdings at the end of the quarter. In this article we’ll discuss the top five stocks hedge funds have doubled down on, arranged by the total value of holdings. Most of these stocks are either subject to takeover bids or have been pursuing attractive takeover deals. One particular stock was subject of activist efforts from a renowned hedge fund.

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).

First up is Terex Corporation (NYSE:TEX) a manufacturer of heavy lifting equipment. During the first quarter, the number of hedge funds invested in the stock rose to 38 while the value of their holding was up by 132% to $489 million compared to the previous quarter. Steve Cohen gave a massive 1115% boost to his fund’s holding of Terex Corporation (NYSE:TEX), amassing 2.03 million shares worth $50.5 million. Investors and arbitrageurs were dealt a major blow, after the proposed takeover of Terex by Zoomlion was promptly rebuffed by Chinese authorities. Zoomlion, also a manufacturer of heavy lifting machinery, offered to pay $31 for each share of Terex in their bid to hijack the company’s merger with Finnish rival Konecranes. In the mean time, Terex Corporation (NYSE:TEX) reached a deal with Konecranes for the sale of its maritime port and factory crane business for $1.3 billion. Terex shares ended yesterday’s session at $21.18 per unit, up by 16% for the year.

The value of hedge funds’ investment in Syngenta AG (ADR) (NYSE:SYT) rose to $524 million during the first three months of 2016, from $233 million registered at the end of December. The number of funds holding the stock also increased to 32 or 4.2% of the funds followed by Insider Monkey. Robert Emil Zoellner‘s fund, Alpine Associates, initiated a position in Syngenta AG (ADR) (NYSE:SYT), having acquired some 1.41 million shares worth $117 million according to its latest 13F filing. A Swiss manufacturer of agricultural chemical solutions, Syngenta is currently in merger negotiations with Chinese state-owned chemical giant ChemChina. The deal is valued $43 billion and includes $465 per share and a special dividend of five Swiss Francs (approximately $5.05). The deadline for the approval by Syngenta shareholders has recently been extended to July 18 due to delays in regulatory approvals and both companies said they expect the deal to be completed by the end of the year.

On the next page we’ll take a look at three other stocks that hedge funds piled into.

At the end of the first quarter, roughly 22% of TeamHealth Holdings Inc (NYSE:TMH) common stock was held by 22 top hedge funds, down from 25 a quarter before. The value of their holdings, however, surged by nearly 150% to $660 million. A quick look at the hedge fund activity with regard to this stock shows a large number of new positions established during the quarter, which comprised a substantial amount of shares. Barry Rosenstein‘s JANA Partners acquired 5.89 million shares of TeamHealth Holdings Inc (NYSE:TMH) worth $246 million, while Scott Ferguson’s Sachem Head Capital also initiated a fresh stake that amounted to 3.2 million shares by the end of March. JANA’s position is activist by nature and the funds has obtained three board seats as it looks to correct the company’s “missteps in critical areas including capital allocation, strategy and governance.” A provider of staffing and administrative services to hospitals and other healthcare institutions, TeamHealth has a market cap of $3.55 billion and does not pay a dividend. The stock is currently trading at a trailing Price to Earnings (P/E) ratio of around 64, more than double the industry average of 30 as reported by Yahoo! Finance. TeamHealth Holdings Inc (NYSE:TMH) entered a steady uptrend in the beginning of the second quarter, helped by the latest quarterly report that surpassed expectations. The company posted adjusted earnings of $0.62 per share on the back of $1.14 billion in revenues, while analysts had projected $1.12 billion in revenue and a profit of $0.58 per share.

Marriott International Inc (NASDAQ:MAR) also attracted a considerable amount of fresh investment from elite hedge funds, although the number of funds invested barely moved. At the end of the first quarter, 33 of the funds followed by Insider Monkey held $1.28 billion worth of Marriott International Inc (NASDAQ:MAR) shares, up from $606 million a quarter before. During the first quarter, Jonathon Jacobson‘s Highfields Capital Management bought approximately 6.86 million shares valued at $488 million. Boykin Curry also thought it was a good time to invest in Marriott International and bought 3.54 million shares for his fund, Eagle Capital Management. Marriott International Inc (NASDAQ:MAR)’s proposed takeover of Starwood Hotels & Resorts Worldwide Inc(NYSE:HOT) hit a stumbling block in May, after two competitors filed a lawsuit, claiming the deal would violate exclusivity agreements. Marriott won a bidding war to acquire Starwood in a deal worth $12.9 billion, which would create the world’s largest hotel operator by rooms.

Number one stock in this group is ITC Holdings Corp. (NYSE:ITC), an operator of energy transmission infrastructure. The value of hedge funds’ positions in the company increased to $1.55 billion at the end of March, from $668 million registered three months earlier. The number of long positions also rose to 35 from 26 at the end of December. The largest stake in ITC Holdings Corp. (NYSE:ITC) among the funds tracked by Insider Monkey was held by Eton Park Capital, run by Eric Mindich. According to its latest 13F filing, the fund held 5.79 million shares worth $252 million at the end of the quarter. ITC Holdings Corp. (NYSE:ITC) is subject to a takeover bid by Canadian utility operator Fortis. Investors would receive $22.57 in cash and 0.752 Fortis shares for each ITC shares they holds, valuing the company at $11.3 billion. Fortis also agreed to assume $4.4 billion in ITC debt. The company has scheduled a special shareholder meeting on June 22 at which shareholders will vote on the bid.

Disclosure: none.