You might know it, but you have hundreds of unpaid interns pitching you investment ideas. And these aren’t a bunch of college kids- they’re hedge funds and other major investors, many of whom are billionaires. The investing public has access to many of their long stock positions through quarterly 13F filings. While the information in these filings is a bit old, it doesn’t cost anything to take a look and we’ve found that it’s possible to use 13Fs to develop investment strategies; in fact, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio based on these results outperformed the S&P 500 by 33 percentage points in the last 11 months.
We can also go through our database of filings to choose different categories of stocks and see which funds are hedge fund favorites in these spaces, to help investors find interesting names worthy of further research. Using data from Fidelity as well as our database, here are the five most popular stocks among hedge funds which currently pay a dividend yield of at least 3%, have a market capitalization of at least $2 billion, and which are down at least 10% year to date:
Leading our list is $17 billion market cap gold miner Newmont Mining Corp (NYSE:NEM). Gold prices have slumped so far this year, and the poorer business has forced the company to cut its quarterly dividend to 25 cents per share. The combination of these factors has sent Newmont Mining Corp (NYSE:NEM)’s stock price down about 30% so far in 2013. The dividend cut has been by about the same percentage as this fall in the price, and so Newmont Mining Corp (NYSE:NEM) still pays a yield of 3% at current prices. Billionaire David Shaw’s D.E. Shaw more than doubled the size of its position in Newmont Mining Corp (NYSE:NEM) last quarter. George Soros was a little bit cautious about the stock, initiating a large put options position during the second quarter.
Iron Mountain Incorporated (NYSE:IRM) dived about 20% in one day in early June after the company disclosed that the IRS may resist the company’s movements to convert to a real estate investment trust. REITs receive favorable tax treatment, this tax efficiency creates shareholder value, and markets had generally been expecting smooth sailing for the company’s approval. The difficulties for the conversion process have therefore been bad news for the stock. At present the records management and document destruction company pays a yield of 4%, though judging by high earnings multiples it looks like a decent chance of REIT conversion is still priced in at Iron Mountain Incorporated (NYSE:IRM). Jonathan Jacobson has a large position in the stock.
Fiscal Q2 (which ended in early August) was a struggle for American Eagle Outfitters (NYSE:AEO), with sales down slightly. This news helped continue the apparel retailer’s weak market performance so far this year; this drop in the stock price has resulted in a dividend yield of 3.4% as well as both trailing and forward earnings multiples of 13. We’re of course concerned by the fall in revenue, but it may be worth keeping an eye on American Eagle Outfitters (NYSE:AEO) to see if the market may have overreacted. Citadel Investment Group, managed by billionaire Ken Griffin, was among the 27 funds to report a position (find Griffin’s favorite stocks).
Natural gas and oil producer EnCana Corporation (USA) (NYSE:ECA) makes our list with 22 filers reporting a position in the stock in their 13Fs. The dividend yield here is 4.6%, as the stock has remained weak this year but the company has steadily paid quarterly dividends of 20 cents per share for nearly 4 years. At its current market capitalization of $13 billion, EnCana Corporation (USA) (NYSE:ECA) trades at 16 times consensus earnings estimates for 2014- this represents a premium to where larger oil majors trade, and also suggests that given the current dividend yield the payout ratio will be fairly high next year. Billionaire Steve Cohen’s SAC Capital Advisors was buying EnCana Corporation (USA) (NYSE:ECA) during Q2. Ray Dalio, Marty Whitman, and Arvind Sanger are also bullish about the stock.
Another poor performer in the market this year has been Domtar Corp (USA) (NYSE:UFS), a $2.2 billion market cap paper and packaging company. That industry has struggled in recent years; revenue fell 4% last quarter compared to the second quarter of 2012 and earnings remain low on a trailing basis. Wall Street analysts do expect considerable improvement next year- the forward P/E is only 11- and Domtar Corp (USA) (NYSE:UFS) does pay an annual yield of 3.2%. That yield may not be high enough to be worth the current risks to the company but it could prove a potential value play if it hits analyst targets for 2014.
Disclosure: I own no shares of any stocks mentioned in this article.
