The Dow Jones Industrial Average (DJIA) comprises of 30 companies representing a diverse collection of stocks from all market sectors. These large cap stocks generally have high sales and profits and globally diverse operations. These companies are usually the trend setters in their respective fields and are considered to be relatively safe in the investor community. In this article we will try to identify the best of these stocks using our hedge fund sentiment indicator.
Given their 2 and 20 payment structure, hedge funds have more resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments. More recently the top 30 mid-cap stocks (market caps between $1 billion and $10 billion) among hedge funds delivered an average return of 18% during the last four quarters (S&P 500 Index funds returned only 7.6% during the same period). That’s why, we believe, using hedge fund sentiment as an additional screen to narrow down the blue chips may yield promising investment ideas. Here are our findings:
Merck is the fifth most popular Dow stock among hedge funds. During the third quarter, Merck & Co., Inc. (NYSE:MRK) saw a surge in the number of hedge funds having the stock in their portfolios increase to 84 from 66 in the quarter earlier. The value of their holdings also increased by 66% quarter over quarter. Among the funds we track, Israel Englander’s Millennium Management, D.E Shaw and Stanley Druckenmiller’s Duquesne Capital held stakes in the company. Millennium Management and Duquesne Capital bought 2.98 million and 0.68 million shares respectively of Merck & Co., Inc. (NYSE:MRK) during the quarter ending September. This mega-cap healthcare pharmaceutical company has returned 17% year to date and sports a dividend yield of 3%. For the third quarter, Merck & Co., Inc. (NYSE:MRK) reported revenues of more than $10.54 billion, beating consensus estimates by $360 million. The earning per share at $1.07 was also higher than the expected EPS of $0.98.