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Hedge Funds’ Five Most Popular Consumer Services Stocks: Amazon.com, Inc. (AMZN), McDonald’s Corporation (MCD), More

The services industry builds the foundation upon which modern economies stand, offering valuable support and convenience to its clientele. The success of the industry depends upon favorable store locations, efficient operations, and ensuring high-quality customer service. A majority of large-scale companies in this industry work through a national and international network of stores, while the internet revolution has also introduced several e-commerce players and online service companies over the past two decades, which have revolutionized the industry. At Insider Monkey, we track more than 700 hedge funds and their stock holdings. Our analysts process this data to identify the top stock choices for every single industry. What makes this data critical is the fact that investment managers spend millions of dollars on research and employ large teams to identify favorable investment opportunities, so our data effectively collates the wealth of all of this knowledge. As per our analysis of the 13F filings for the reporting period of March 31, Amazon.com, Inc. (NASDAQ:AMZN), Comcast Corporation (NASDAQ:CMCSA), Liberty Global plc (NASDAQ:LBTYK), McDonald’s Corporation (NYSE:MCD), and Time Warner Cable Inc (NYSE:TWC) are the top five choices of the investment managers that we track when it comes to stocks in the consumer services sector.

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Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock choice in the consumer services sector. Out of 730 funds that we track, 96 fund managers have positions in the online retailer with aggregate investments of $8.40 billion. The e-commerce company has gained a good deal of popularity in comparison to three months earlier, when just 76 firms had investments in it totaling $5.91 billion. According to a recent report from the Wall Street Journal, Amazon.com, Inc. (NASDAQ:AMZN) is all set to enter the artisan goods industry. The online retailer is sending email invites to sellers, informing them about the newest section of its e-commerce site: “Handmade.” This could be bad news for Etsy Inc (NASDAQ:ETSY), whose shares have already fallen by 44% since its IPO in April. Ken Fisher‘s Fisher Asset Management and Eagle Capital Management are among the investment managers holding large positions in Amazon.

Comcast Corporation (NASDAQ:CMCSA) comes in at number two on the list of the most popular stock choices in the consumer services industry. 91 investment managers have positions in the company, with their net investment amounting to $7.16 billion. Those figures are down slightly from the $7.54 billion held by 94 fund managers three months prior. The internet service provider announced its latest multi-gigabit broadband service last week, which is likely to roll-out this summer. Gigabit Pro will be available within the existing network of Comcast Corporation (NASDAQ:CMCSA) in Washington and it will offer 2 Gigabit-per-second service to customers there. In addition to the high-speed Gigabit service, the cable network company is offering an Extreme 250 plan, a 250 Mbps internet speed tier to its customers in Washington. Comcast Corporation (NASDAQ:CMCSA) made a failed attempt to acquire its smaller rival Time Warner Cable Inc (NYSE:TWC) for $45 billion, with the deal falling apart primarily because of regulatory concerns. First Eagle Investment Management and Lansdowne Partners are among the primary investors of Comcast Corporation.

Liberty Global plc (NASDAQ:LBTYK) is another top choice of hedge funds in the consumer services sector, with 90 firms in our database having a position in the company as of March 31, with an aggregate of $10.14 billion invested. The international telecommunications company is another stock in this sector which declined in popularity slightly during the first quarter, from 94 firms having $10.16 billion invested as of the end of 2014. The Class C shares of Liberty Global plc (NASDAQ:LBTYK) have grown 9% year-to-date to trade at $53.06 per share. Liberty Global reported net revenue of $4.52 billion for the first quarter of 2015 with a net loss of $537 million attributable to the shareholders of the company. Boykin Curry‘s Eagle Capital Management is the top shareholder of the company’s Class C shares with 32.72 million of them.

The fast-food restaurant chain McDonald’s Corporation (NYSE:MCD) gained popularity among investment managers during the first quarter, with 89 investment firms holding positions in McDonald’s as compared to 75 at the end of 2014. The overall value of their investments was also up by 32.6% to $6.83 billion. McDonald’s Corporation (NYSE:MCD) is working on a turnaround plan that will focus on strategic changes to its menu and adding more options for a higher price tag. For instance, the McChicken sandwich with tomato and leaf lettuce is a new option, which is likely to cost $1.50 against the earlier sandwiches which were sold in the $1.20 to $1.39 range. The company is planning some new drinks for the summer season as well. Additionally, customers should expect a smaller menu available through McDonald’s Corporation (NYSE:MCD)’s drive-thrus, with expectations that a smaller menu will help the company boost its operational efficiency. The fast-food restaurant chain has attracted investments from the likes of Mason Hawkins‘ Southeastern Asset Management and Highfields Capital Management.

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Mason Hawkins
Southeastern Asset Management

Time Warner Cable Inc (NYSE:TWC) is another popular consumer services stock among the investment firms that we track. With 83 investors holding an aggregate investment of $10.18 billion, Time Warner Cable has seen a slight increase in popularity from the 82 investors holding $9.08 billion of the company’s stock at the end of 2014. The shares of Time Warner Cable Inc (NYSE:TWC) traded 7.23% higher for the day on Tuesday at $183.60, after its acquisition by Charter Communications, Inc. (NASDAQ:CHTR) was announced. Charter Communications will attempt to acquire Time Warner Cable Inc for $56 billion, with its offer including $195.71 in cash and stock against every share of Time Warner Cable Inc (NYSE:TWC). If the Federal Communications Commission approves this deal, the combined company would control 20% of the U.S broadband market. Childrens Investment Fund and John Paulson‘s Paulson & Co are among some of the major stockholders of Time Warner Cable Inc.

Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. These stocks were able to generate alpha because of their lower risk profile. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). Since the official launch of our small-cap strategy in August 2012 it has performed just as predicted, returning over 144% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

Disclosure: None

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