Best Midcap Stocks To Buy According To Billionaire Loeb

Times are apparently tough for the $3 trillion hedge fund industry. Irritated by plunging returns and high fees, investors pulled out billions from hedge funds in 2016. But our research has proved time and again that hedge funds remain the best stock pickers if we focus our attention to the right areas of their portfolios and moves. For example, the best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% in the 12 months ending November 21, while the S&P 500 Index returned about 7.6% in the same period, with more than 51% of the stocks in the index failing to beat the benchmark. Contrary to this, Hedge Fund Research Global Index is up only 1.9% this year. Why? Hedge funds’ aggregate returns are bound to lag the market because these returns are hedged, and are marred by losses that come from short positions.

Billionaire Dan Loeb’s Third Point’s performance is one of the best examples to look at to see the real potential of hedge funds. Comprehensive backtests done by Insider Monkey’s research team show that an investor imitating the fund’s picks returned 1.15% per month from its positions in companies having a market cap in the range of $10 billion- $20 billion during the period 1999-2012, versus S&P 500’s per month return of just 0.12% in the same period.

This a very simple strategy to implement. Every 3 months Dan Loeb’s Third Point discloses the US equity holdings of its portfolio in a 13F filing. An investor gets to see Loeb’s September 30th holdings on or around November 14th. If that investor bought Loeb’s mid-cap holdings by the end of November and held on to these stocks for 3 months (until the next quarterly filing), he/she would have outperformed the passive index funds that invest in large-cap stocks by more than 12 percentage points a year. This example is just one glimpse of the benefits of tracking hedge funds with a smart approach and keen research.

Let’s analyze Third Point’s mid-cap picks of the third quarter.

Dell Technologies Inc (NYSE:DVMT)

Third Point dumped 3.7 million shares of Dell Technologies Inc (NYSE:DVMT) in the third quarter, cutting its stake in the Texas-based technology company by a whopping 61%. The fund now has $109.94 million stake in Dell. The stock is up over 7% year-to-date. The company reported third quarter EPS of $0.76, while non-GAAP revenue totaled to $16.8 billion, versus $12.67 billion reported last year. Of the 750 funs in our system, 86 were long Dell Technologies Inc (NYSE:DVMT) at the end of the third quarter.

Shire PLC (ADR) (NASDAQ:SHPG)

Third Point sold 50,000 shares of Shire PLC (ADR) (NASDAQ:SHPG) in the September quarter, and moved into the last quarter of 2016 with 900,000 shares of the UK-based biotechnology company. The total worth of the update stake is $174.47 million.  JPMorgan Chase & Co. reaffirmed their ‘Overweight’ rating for the company in a report published on December 5, while Deutsche Bank and AlphaValue also gave a ‘Buy’ rating for the company on the same day. Last week, Shire said its Phase 3 clinical trial of VONVENDI to treat bleeding in adults with severe von Willebrand disease (VWD) met its primary endpoint. The stock is down over 20% year-to-date. 50 hedge funds in our database held stakes in Shire PLC (ADR) (NASDAQ:SHPG) at the end of the third quarter, down from 64 a quarter earlier.

On the next page, we will discuss some more Dan Loeb’s important picks. 

Mohawk Industries, Inc. (NYSE:MHK)

Third Point dumped 40% of its stake in Mohawk Industries, Inc. (NYSE:MHK) in the third quarter, ending the period with a total of 900,000 shares of the company which have a total value of $180.31 million. Investment firm RBC Capital Markets reaffirmed its ‘Outperform’ rating for the Georgia-based flooring manufacturer recently with a price target of $248. The stock has gained over 6% in value year-to-date. For the fourth quarter of 2016, Mohawk expects to earn $3.16-$3.25 a share, versus the consensus of $3.17. Robert Joseph Caruso’s Select Equity Group owns 2.28 million shares of Mohawk Industries, Inc. (NYSE:MHK), as of the end of the September quarter.

Molson Coors Brewing Co (NYSE:TAP)

Third Point bagged 700,000 more Molson Coors Brewing Co (NYSE:TAP) in the third quarter, upping its stake in the company by 70%. The fund now owns a $186.66 million stake in the Colorado-based Brewer. The company’s stock has gained over 4% in year since the start of the ear. Last month, Molson Coors Brewing’s CFO Mauricio Restrepo resigned because of “personal conduct” that was unrelated to the company’s operations, according to Molson’s statement. The company completed its $12 billion acquisition of SABMiller’s 58% stake in October. The joint venture is expected to boost the Molson’s revenue and improve its buying power. In the third quarter, Molson’s net sales plummeted by 6.9% to $947.6 million. At the end of the third quarter, 59 funds out of nearly 750 funds tracked by Insider Monkey were bullish on Molson Coors Brewing Co (NYSE:TAP).

TransDigm Group Incorporated (NYSE:TDG)

Third Point reported ownership of 1.13 million TransDigm Group Incorporated (NYSE:TDG) shares at the end of the third quarter, which have a net worth of $326.99 million. TransDigm Group’s stock is up over 9% year-to-date. Zacks recently recommended investors to sell the Ohio-based aerospace company’s stock, citing negative trend in earnings estimate revisions. The company gave earnings estimate of $11.84-$12.12 for the full year 2017, versus the consensus of $12.80, while revenue is expected by the company to come in at $3.515-3.565 billion in the same period, while the Street was projecting $3.59 billion. Stephen Mandel’s Lone Pine Capital owns 2.25 million shares of TransDigm Group Incorporated (NYSE:TDG), as of the end of the third quarter.

Disclosure: None