5 Stocks Hedge Funds Are Crazy About

The hedge fund industry continues to prove its mettle in the investment world, despite the pervasive negative mainstream sentiment that seems to dog it at every turn. As of the end of the third quarter, the hedge fund industry’s assets under management had grown to $3.24 trillion, despite net outflows of $66.7 billion. Hedge funds collectively returned 5.44% through the first three quarters of 2016 and had a seven-month win streak during the year, which was only recently snapped.

For this article, we analyzed the portfolios of all 742 hedge funds in our database which filed 13Fs for the September 30 reporting period and uncovered the five stocks that are the most owned among them. We share our findings below.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

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Microsoft Corporation (NASDAQ:MSFT)

Microsoft Corporation (NASDAQ:MSFT) ranks fifth in terms of popularity among the funds in our database. A total of 126 funds owned $18.14 billion worth of Microsoft Corporation (NASDAQ:MSFT) shares as of the end of the third quarter, down from 131 funds a quarter earlier. The stock has gained over 10% year-to-date. Last week, investment firm Goldman Sachs upgraded Microsoft to ‘Buy’ from ‘Neutral’ and upped their price target on it to $68 from $60. The firm anticipates Microsoft’s cloud revenue to more than quadruple to $140 billion by 2020. First Eagle Investment Management started the fourth quarter with 23.42 million shares of Microsoft among its holdings.

Apple Inc. (NASDAQ:AAPL)

Apple ranks fourth on our list of hedge funds’ favorite stocks. 145 funds were long Apple Inc. (NASDAQ:AAPL) at the end of the third quarter, up from just 116 funds a quarter earlier as hedge funds piled back into Apple. However, those hedge funds collectively owned just 2% of Apple’s float, making them underweight the tech giant still. Apple Inc. (NASDAQ:AAPL) is up by 6% year-to-date. More than one analyst recently estimated that Apple took home more than 100% of the smartphone industry’s profit in the third quarter, as the rest of the industry is estimated to have lost money collectively. Legendary investor Warren Buffett of Berkshire Hathaway owns 15.23 million Apple shares as of the end of September.

We’ll check out hedge funds’ three favorite stocks on the next page.

Facebook Inc (NASDAQ:FB)

A total of 149 hedge funds tracked by Insider Monkey owned Facebook Inc (NASDAQ:FB) shares at the end of the third quarter, versus 148 funds a quarter earlier. Those funds own over $16.7 billion worth of Facebook’s stock, which accounts for 4.70% of the social media company’s float. Last week, famous investor Bill Miller said during a CNBC interview that the recent FB selloff offers a good investment opportunity. The New York Times recently claimed that Facebook has developed a secret censorship tool to get into China, a market which Mark Zuckerberg has been eyeing for some time. The tool will filter posts before they go live on users’ feeds. The tool would accommodate Chinese censorship laws, which are harsh, and have led to the banning of several American internet companies from operating in the country. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital reported owning 7.11 million shares of Facebook as of the end of the third quarter.

Amazon.com, Inc. (NASDAQ:AMZN)

The collection of hedge funds tracked by Insider Monkey continued to love Amazon.com, Inc. (NASDAQ:AMZN) during the third quarter, with 149 of them having amassed $20.7 billion worth of the company’s shares as of the end of the period. Their holdings collectively accounted for 5.90% of Amazon’s float as of that time. Amazon appeared set to face a rough holiday season amid a pilot strike at ABX Air, the airline used by Amazon for shipments. The strike would have caused a delay in the deliveries of orders, which of course skyrocket during the holiday season. However, a Federal judge in Cincinnati recently ordered the pilots back to work. Amazon.com, Inc. (NASDAQ:AMZN)’s stock is up by over 16% year-to-date. In the third quarter, Amazon earned $0.52 per share on $32.71 billion in revenue, while estimates had predicted $0.78 in EPS and $32.69 billion in revenue. Andreas Halvorsen’s Viking Global owns 2.93 million shares of Amazon as of the end of the third quarter.

Alphabet Inc (NASDAQ:GOOG)

More of the hedge funds tracked by Insider Monkey owned shares of Alphabet Inc (NASDAQ:GOOG) on September 30 than any other stock. A total of 200 unique hedge funds owned either the company’s class A or class C shares (or both), a full 33% more than Amazon’s ownership among hedge funds. At the end of the second quarter, 187 funds in our database held either the class A or class C shares of Alphabet.  Alphabet Inc (NASDAQ:GOOG) earned $9.06 per share in the third quarter, versus the consensus estimate of $8.64, while revenue of $22.25 billion was in-line with estimates. The stock is up by just over 1% so far this year. Natixis Global Asset Management’s Harris Associates owns 2.36 million class C shares of Alphabet Inc (NASDAQ:GOOG) as of the end of September.

Disclosure: None