In the second part of our series of articles covering JPMorgan’s favorite dividend stocks for 2016 (see the first part here), we cover Corning Incorporated (NYSE:GLW), Energy Transfer Partners LP (NYSE:ETP), EPR Properties (NYSE:EPR), FirstEnergy Corp. (NYSE:FE), and Foresight Energy LP (NYSE:FELP). In addition, we will also analyze relevant hedge fund sentiment toward each stock.
But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36 month period beginning from September 2012 (see the details here).
Corning Incorporated (NYSE:GLW)
– Number of Hedge Fund Holders (as of September 30): 38
– Total Value of Hedge Fund Holdings (as of September 30): $957.93 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 4.60%
With demand for 4K TV’s strong and management focused on increasing shareholder returns, the analysts at JPMorgan think Corning Incorporated (NYSE:GLW) has significant upside, with an ‘Overweight’ rating and a $20 price target. Not only does Corning pay a 2.67% dividend yield, but it is also undervalued on an ex-cash PEG basis versus its competitors. Shares trade at a cheap 12.33 times forward earnings and 10.6 forward P/E ex-cash. Among the 38 elite fund holders of the stock include David Harding‘s Winton Capital Management, which raised its position by 88% in the third quarter to 9.47 million shares.
Energy Transfer Partners LP (NYSE:ETP)
– Number of Hedge Fund Holders (as of September 30): 18
– Total Value of Hedge Fund Holdings (as of September 30): $470.44 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 2.20%
Despite the stock’s disappointing performance in 2015, JPMorgan still likes midstream giant Energy Transfer Partners LP (NYSE:ETP). The analysts have (perhaps an outdated) $73 price target on the stock, and believe the company’s 14.96% dividend yield is secure. Central to the analysts’ bullish thesis is the belief that Energy Transfer Equity LP (NYSE:ETE) will do whatever it takes to defend ETP, as Energy Transfer Equity LP’s growth depends in large part on a strong ETP. Hedge fund sentiment in the stock has remained stable, with the number of funds long Energy Transfer Partners LP unchanged at 18. Jim Simons’ Renaissance Technologies owned 1.81 million shares at the end of September. Given the industry’s recent events, we are not so sure about JPMorgan’s views in the short term, especially after Kinder Morgan Inc (NYSE:KMI)’s dividend cut, but we are bullish in terms of a timeline of five years or more.