Multi-Billion Dollar Hedge Fund’s Favorite Stocks: Microsoft Corporation (MSFT), ConocoPhillips (COP)

Page 1 of 2

Hedge funds often get a bad rap, but the smart money still has plenty of investing chops if you know where to look. At Insider Monkey, we’ve found that historically, the best stock picks of the best fund managers can beat the market, and quite handily at that. For more than a decade, our small-cap strategy generated an outperformance of 18% a year, and since we started sharing these picks with the public last fall, it has outperformed the S&P 500 index by a whopping 22.5% in only 5.5 months.

The point is this: take advantage of the investing world’s ignorance, and pay attention to hedge fund sentiment. Here’s how to use these dominant strategies for yourself.

With that in mind, we’re going to take a detailed look at one fund that has flown under the radar of the mainstream media: John Overdeck and David Siegel’s Two Sigma Advisors (see their full equity portfolio). This duo has a relatively large multi-billion dollar equity portfolio to their name, and invests in a range of stocks, from healthcare to technology. Let’s take a look at what Overdeck and Siegel’s top five stock picks were in the fourth quarter, to see how they have prepared for 2013.

ConocoPhillips (COP) Selling Cedar Creek Assets to Denbury (DNR) for $1.05 BillionConocoPhillips (NYSE:COP) represents the largest position in this hedge fund’s equity portfolio after Overdeck and Siegel upped their stake by 330% last quarter. Of the 35 managers who were long Conoco in both Q3 and Q4, this increase represents the largest of the bunch, more than Ken Griffin (+162%) and Jason Adler’s (+106%) moves. That’s quite the bet considering that Conoco’s stock price only appreciated by 1.4% in the fourth quarter.

Since the start of 2013, shares have returned just 0.3%, but it’s worth noting that Wall Street’s average price target is 6-7% higher than current levels. At a mere 9.4 times forward earnings and 1.5 times book, Conoco isn’t particularly expensive, and combined with the fact that its dividend yield is a whopping 4.5%—higher than peers like Exxon and Encana—makes it easy to see why Overdeck and Siegel are so bullish.

SBA Communications Corporation (NASDAQ:SBAC), meanwhile, is the duo’s No. 2 stock pick, and has been for two consecutive quarters. There’s not a ton of interest in SBA from many of the hedge fund’s peers, but Stanley Druckenmiller and Jim Simons (see Simons’s full profile) are a couple of the top-tier managers who are long. The company, which owns and operates wireless communications towers, has been a splendid investment over the past year, returning over 50%. As is the case with most of its peers, SBA should continue to benefit from 4G LTE rollout—particularly in rural areas—and analysts’ average target represents a 15% upside. This is a momentum play, pure and simple.

Microsoft Corporation (NASDAQ:MSFT) sits at third in Overdeck and Siegel’s portfolio, and the hedgies upped their stake by more than 300% last quarter. Generally speaking, this goes against the trend we’ve observed, where the smart money is moving capital out of top-tier tech players into discounted financial companies. Microsoft lost more than 10% of its value in Q4 and it has underperformed the technology sector year-to-date. Still, for investors who believe that the Surface Pro, Windows 8 OS, and the new Xbox can drive future growth are now able to snatch up Microsoft at a solid price. Shares trade at a mere 8.8 times forward earnings, and a dividend yield of 3.3% acts as the bulls’ proverbial cherry on top.

Who’s the best of the rest?

Page 1 of 2
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 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!