These Stocks Were Upgraded This Morning And Hedge Funds Couldn’t Agree More

Analysts have been busy over the weekend, as a slew of stocks have received upgrades this morning, including one company which was on the receiving end of not one, but two such bullish calls. The stocks in question are Citigroup Inc (NYSE:C), J C Penney Company Inc (NYSE:JCP), AbbVie Inc (NYSE:ABBV), and Newell Rubbermaid Inc. (NYSE:NWL), and we’ll dig into the latest analyst action concerning them in this article.

Let’s start with Citigroup Inc (NYSE:C), which was the recipient of the aforementioned dual upgrades. Bother Credit Suisse and Jefferies issued upgraded ratings calls on the investment bank this morning, which is also the favorite financial stock of the billionaires tracked by Insider Monkey. Jefferies upgraded the stock to ‘Buy’ from ‘Hold’, while Credit Suisse upgraded it to ‘Outperform’ from ‘Neutral’. The firms have $60 and $62 price targets on the stock respectively, suggesting upside potential of about 20-25%. Shares of Citigroup crested the $60 mark in July before sinking during the recent market turmoil and leveling off. Ken Fisher and Ken Griffin are two of the billionaires invested in Citigroup Inc (NYSE:C), with holdings of 11.83 million shares and 6.59 million shares respectively.

Hedge funds and other big money managers like Ken Griffin and Ken Fisher tend to have the largest amounts of their capital invested in large and mega-cap stocks like Citigroup because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of 118%, beating the broader market by over 60 percentage points through the end of April (see the details).

Next up is J C Penney Company Inc (NYSE:JCP), which was upgraded to ‘Buy’ from ‘Neutral’ by Sterne Agee, which cited positivity about the retailer’s turnaround potential following a meeting with its CEO. The latest upgrade follows Deutsche Bank also upgrading the stock to ‘Buy’ at the end of August, a couple weeks after J C Penney’s second quarter earnings release showed some positive momentum. The improving results allowed J C Penney Company Inc (NYSE:JCP) to largely avoid a big dip during the market downturn in August, with its shares up by 13% in the third quarter. The hedge funds tracked by Insider Monkey appear to have been correct in their growing bullishness for the company, as they held 13.10% of the department store chain’s shares on June 30, nearly double the amount they did on March 31, with the shares being worth $340 million. Jim Simons’ Renaissance Technologies was leading the charge, with ownership of 11.04 million shares.

AbbVie Inc (NYSE:ABBV) received the upgrade treatment from Citigroup, which replaced its ‘Sell’ rating on the stock with a ‘Neutral’ one. Citi has a $60 price target on the stock, which has fallen from over $70 to just $54 over the past two months. Hedge funds are excited about AbbVie’s potential however, with billionaire healthcare investor Larry Robbins believing that the biopharmaceutical company was trading at a notable discount to 2016 and 2017 projected earnings, even before the latest decline of shares. Robbins increased his holding in AbbVie Inc (NYSE:ABBV) by 631% during the second quarter to 17.86 million shares, making it his third-largest holding overall. 79 hedge funds owned $6.11 billion of the company’s shares on June 30, a marked increase from 72 and $3.29 billion respectively on March 31.

The final ratings update we’ll discuss comes courtesy of Jefferies, as it initiated coverage on Newell Rubbermaid Inc. (NYSE:NWL) with a ‘Buy’ rating and $50 price target. It also added the stock to its ‘Franchise Pick’ list. Jefferies analyst Kevin Grundy cites strong earnings growth potential as one of the reasons behind the bullish call, with the potential for double-digit earnings growth through the 2018 fiscal year. Despite the bullish call from Jefferies, shares are trading down by over 2% so far this morning. Hedge funds in our database were also bullish on this stock in the second quarter, increasing the value of their collective holdings by over 40% to $460 million, though they still held just 4.20% of its outstanding shares. Among the bullish investors of Newell Rubbermaid Inc. (NYSE:NWL) were Dmitry Balyasny’s Balyasny Asset Management and Malcolm Fairbairn’s Ascend Capital, each of which opened new positions during the second quarter.

Disclosure: None