Hedge Funds Regret Selling These Soaring Stocks, Part 2

Whether it was for profit taking or because of a bearish view, several stocks registered a significant drop in popularity among the funds we track during the third quarter. However, some of these stocks appreciated since the end of the third quarter and we have compiled a list of stocks, many of which have posted double-digit gains since the end of September. The first part of the list can be found here. Let’s take a look at the second part, which includes other five stocks that smart money investors might regret selling between July and September.

An everyday investor doesn’t have the same resources and possibilities to analyze different publicly-traded companies as hedge funds do. This is why it is a good idea to see at least what stocks hedge funds like the most and try to imitate some of their bullish moves in an attempt to reap market-beating returns. At Insider Monkey, we follow the activity of several hundred of the best-performing hedge funds as part of our strategy. We analyze their 13F filings and use the data to see what stocks they are collectively bullish on. However, through extensive research we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of 15 most popular small-cap stocks generated alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see the details here).

#5 Facebook Inc (NASDAQ:FB)

Investors with Long Positions (as of September 30): 128

Aggregate Value of Investors’ Holdings (as of September 30): $8.96 Billion

During the third trimester the total number of hedgies holding shares of the $290.57 billion company in their portfolios dwindled by five while the aggregate value of these holdings increased by about $100 million mostly on the back of the 5% increase registered by the stock during this period. However, during the fourth quarter of 2015, Facebook’s stock advanced by more than 20% and closed 2015 with gains of around 34%. Gabriel Plotkin’s Melvin Capital Management and Robert Pohly’s Samlyn Capital reduced their respective Facebook holdings by 40% and 38% during the July-September period. Stephen Mandel‘s Lone Pine Capital seems to be on the right track though as it hiked its Facebook Inc (NASDAQ:FB) holding by 10% during the third trimester to 10.7 million shares.

 

2016 is expected to be a crucial year for the company and investors have high expectations from the company for the year. In addition to the sales growth and solid EPS figures projected by analysts, Facebook plans to expand its user base with the launch of a satellite that would be capable to provide Internet access in Africa, among its other initiatives. In terms of stock growth, billionaire Leon Cooperman’s Omega Advisors projected an 18% annual growth rate for Facebook’s stock for the next three to five years, according to an October investor conference call.

#4 General Motors Company (NYSE:GM)

Investors with Long Positions (as of September 30): 88

Aggregate Value of Investors’ Holdings (as of September 30): $5.11 Billion

While the total number of hedge funds with investments in the $53.7 billion automobile manufacturer dropped by 16 in the July-September period, the subsequent decline in the aggregate value of these investments stood at $670 million. Leon Cooperman’s Omega Advisors and Magnetar Capital, managed by Alec Letowitz and Ross Laser disposed of their entire stakes in General Motors during the third quarter. Collectively hedgies held about 14.4% of the company’s outstanding stock at the end of September. On the other hand,  Warren Buffett‘s Berkshire Hathaway boosted its stake in General Motors Company (NYSE:GM) by 22% during the third quarter to 50 million shares.

General Motors Company (NYSE:GM)’s stock appreciated by more than 13% during the last quarter of 2015, but has slid by 11% alongside the rest of the market. Earlier this week, GM raised its guidance for the current year, citing industry growth, efforts to increase efficiency, and “strong product launch cadence”. In this way, GM currently forecasts EPS in the range of $5.25 and $5.75, compared to the previous range of $5 – $5.50. The company also raised its quarterly dividend by 6% to $0.38 per share and increased its stock buyback by $4 billion to $9 billion.

#3 Delta Air Lines, Inc. (NYSE:DAL)

Investors with Long Positions (as of September 30): 109

Aggregate Value of Investors’ Holdings (as of September 30): $7.32 Billion

Although the total number of hedge funds with exposure to Delta Air Lines, Inc. (NYSE:DAL) was reduced by five during the third quarter, the aggregate value of these holdings rose by about $320 million, mostly on account of a 12.76% rise in the company’s stock price during this period. The stock has surged by another 15% in the following three months. Hedgies losing on this surge include Dan Loeb’s Third Point and Bart Baum’s Ionic Capital Management as they liquidated their entire Delta Air holdings between July and September. On the other hand, Lansdowne Partners is the largest stockholder of Delta Air Lines, Inc. (NYSE:DAL) within our database holding more than 26.57 million shares valued at $1.19 billion as of the end of the third quarter.

At the beginning of January, Delta Airlines announced some of its financial and operational performance for December and said that its consolidated passenger unit revenue (PSRAM) slid by an annual 5%. In this way, the company now expects an operating margin between 16.5% and 17.5%, while unit revenue is expected to fall by around 1.5% for the last quarter of 2015.

#2 Alibaba Group Holding Ltd (NYSE:BABA)

Investors with Long Positions (as of September 30): 60

Aggregate Value of Investors’ Holdings (as of September 30): $3.79 Billion

A lot of uncertainty surrounded this e-commerce juggernaut last year and the stock closed 2015 with losses of around 22%. However, during the fourth quarter, the stock surged by 40% as the company posted record-breaking Singles Day sales and went through the holiday season. Quite a few hedge funds missed out on this rally as the total number of funds which were long in Alibaba Group Holding Ltd (NYSE:BABA) fell by 25 during the third quarter with the respective value of aggregate investments sliding by $979 million. Among the funds that sold their shares were David Tepper’s Appaloosa Management and Jeffrey Smith’s Starboard Value LP, both of which disposed of their entire stakes in Alibaba during the third quarter. On the other hand, Boykin Curry‘s Eagle Capital Management held about 8.08 million shares of Alibaba Group Holding Ltd (NYSE:BABA) at the end of September.

Since the beginning of the year, Alibaba’s stock has lost another 11%, amid mixed data from China. Next week the eyes will be on China again, as the country’s government will reveal the growth rate for 2015. In any case, Alibaba is a good long-term investment, due to its leading position on the Chinese e-commerce market. With the earnings season ahead, Alibaba is likely to post strong figures for the last quarter, taking into account its leading position and strong Singles Day results.

 

#1 Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)

Investors with Long Positions (as of September 30): 70

Aggregate Value of Investors’ Holdings (as of September 30): $6.80 Billion

While the number of money managers holding Teva in their portfolios dropped by seven during the third quarter, the aggregate value of their holdings increased by $2.5 billion even though the stock price depreciated by more than 15% during the same period. During the fourth quarter, Teva’s stock gained around 19% and ended the year 15% in the green. Among the funds disposing of their positions during the third quarter are Hal Mintz’s Sabby Capital and Paul Sinclair’s Blue Jay Capital Management, while Jeremy Green‘s Redmile Group hiked its stake by 18% to 1.14 million shares.

Last year was huge in terms of M&A deals in the healthcare sector. In July, Teva acquired Allergan’s generic business for a total of $40.5 billion in stock and cash. The transaction is expected to be completed by the end of March and it will strengthen Teva’s position as the leading generic drug manufacturer in the world. In addition, Teva sports strong fundamentals, and trading at 11 times forward earnings and a 2.2% dividend yield, the stock might represent a compelling investment opportunity.

Disclosure: None