Hedge Funds Are Buying These 10 Large-Caps, Part 2

Large-cap stocks are generally less immune to sharp moves based on rumors than their mid and small-cap counterparts. While this characteristic ensures that they remain relatively stable, it also makes it difficult for investors to enter the stock at a valuation they find reasonable. However, once in a while the equity markets do give an opportunity to patient investors, no matter how big or small a stock is. The third quarter of this year was one such recent period when most stocks, including stocks of industry behemoths, saw wild swings, primarily of the downwards variety. Since smart money always gets active during such periods, the third quarter saw several hedge funds lapping up their favorite large-cap stocks in droves. Based on this sudden jump in the popularity of some large-cap stocks among the hedge funds in our database, we at Insider Monkey compiled a list of the ten large-cap stocks that hedge funds were buying vigorously during the third quarter. In a previous post, we revealed the first five stocks that made it to our list and in this post we’ll reveal the remaining five stocks and discuss their prospects and performance.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

Alphabet Inc (NASDAQ:GOOG)

 – Investors with Long Positions (as of September 30): 119

 – Aggregate Value of Investors’ Holdings (as of September 30): $10.18 Billion

Alphabet Inc (NASDAQ:GOOGL)

 – Investors with Long Positions (as of September 30): 129

 – Aggregate Value of Investors’ Holdings (as of September 30): $11.3 Billion

The greater than 16% rise that both Alphabet Inc (NASDAQ:GOOG) and Alphabet Inc (NASDAQ:GOOGL) had during the third quarter inspired many hedge funds to go long in the company’s class A and class C shares. While the number of hedge funds covered by Insider Monkey that reported owning Alphabet Inc (NASDAQ:GOOG)’s class C shares jumped by 12 quarter-over-quarter, those who reported owning Alphabet Inc (NASDAQ:GOOG)’s class A voting stock increased by 14. It recently came to light that Alphabet Inc is in talks with major Hollywood studios to create original content for its YouTube Red paid service. On Tuesday the company announced that it is contemplating launching Google Fiber, its super-fast internet service, in Los Angeles. Lee Ainslie‘s Maverick Capital increased its stake in Alphabet Inc’s class C shares by 20% to 742,641 shares during the July-to-September period.

Pfizer Inc. (NYSE:PFE)

 – Investors with Long Positions (as of September 30): 97

 – Aggregate Value of Investors’ Holdings (as of September 30): $6.1 Billion

Pharmaceutical giant Pfizer Inc. (NYSE:PFE) recently announced that it would be buying Allergan plc Ordinary Shares (NYSE:AGN) for $160 billion. Moreover, Reckitt Benckiser Group Plc-ADR (OTCMKTS:RBGLY) CEO, Rakesh Kapoor, recently revealed that the company could consider buying the consumer healthcare unit of Pfizer Inc. (NYSE:PFE). It seems that with the rapid M&A activity taking place in the biotech space,  hedge funds had already anticipated that Pfizer Inc. would be making a move soon and purchased shares of the company in droves during the third quarter. Pfizer Inc. was the 16th-most popular stock among the hedge funds covered by Insider Monkey at the end of September, with 12 more funds owning a stake in the company by the end of the quarter than at the start. The aggregate value of investors’ holdings in the company also rose by over $1.4 billion during the third quarter. With ownership of almost 32 million shares of Pfizer Inc., Ken Fisher‘s Fisher Asset Management continued to remain the company’s largest shareholder in our database as of the end of September.

Bank of America Corp (NYSE:BAC)

 – Investors with Long Positions (as of September 30): 108

 – Aggregate Value of Investors’ Holdings (as of September 30): $6.44 Billion

Shares of Bank of America Corp (NYSE:BAC) have been range-bound throughout 2015. However, the popularity of the stock among hedge funds has seen a marked increase over the past few months. During the third quarter, it was added to the portfolios of 13 more funds in aggregate, though the value of their holdings in it saw a decline of over $1.28 billion. On December 10, the Federal Reserve announced that it has evaluated the bank’s resubmitted stress test and approved its forward-looking capital plan. Investors of Bank of America Corp (NYSE:BAC) can now breathe a sigh of relief, as after this decision, the bank can continue to pay its $0.05 quarterly dividend and continue to buy back shares. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital more than doubled its stake in Bank of America Corp to over 27.6 million shares during the July-to-September period.

Bristol-Myers Squibb Co (NYSE:BMY)

 – Investors with Long Positions (as of September 30): 62

 – Aggregate Value of Investors’ Holdings (as of September 30): $2.52 Billion

After witnessing a rally during the first-half of the year, shares of Bristol-Myers Squibb Co (NYSE:BMY) slumped by almost 10% during the third quarter. Nevertheless, they have managed to recover most of those losses in the fourth quarter and currently trade up by 14.55% year-to-date. Hedge funds seem to have made full use of the decline that Bristol-Myers Squibb Co (NYSE:BMY)’s stock suffered during the third quarter, as the number of funds tracked by us that were long the stock increased by 14 and the aggregate value of their Bristol-Myers positions rose by nearly $330 million during the same period, despite the share decline. On December 1, the company suffered a setback after the Food and Drug Administration rejected its supplemental Biologics License Application (sBLA) for its metastatic melanoma drug Opdivo (nivolumab). Michael Castor‘s SIO Capital initiated a stake in Bristol-Myers Squibb Co during the third quarter, purchasing 82,734 shares of the company.

Mondelez International Inc (NASDAQ:MDLZ)

 – Investors with Long Positions (as of September 30): 69

 – Aggregate Value of Investors’ Holdings (as of September 30): $6.87 Billion

Finally, the strong performance of confectionary giant Mondelez International Inc (NASDAQ:MDLZ)’s stock this year and over the last three years has helped make it a favorite among hedge funds, especially activist hedge funds. Although the stock of Mondelez International Inc (NASDAQ:MDLZ) remained nearly flat during the third quarter, its popularity among hedge funds shot through the roof, with a net 20 more funds reporting owning a stake in the company as of the end of September than did as of the end of June. Moreover, the aggregate value of hedge funds’ holdings in the company also saw a spike of 43.11% during the period. One possible reason for so many hedge funds buying the stock could be that revered activist investor Bill Ackman‘s Pershing Square initiated a stake in the company during the period, which became public in early-August. At the end of September, Pershing Square held over 43 million shares of the company and was its second-largest shareholder, after another famous activist investor, Nelson Peltz‘s Trian Partners, which held over 48 million shares.

Disclosure: None