A popular misconception among investors is that the rounds of 13F filings released by hedge funds and other notable investors several weeks after the end of each quarter are not of much use in generating high returns. At Insider Monkey, we track hundreds of 13F filers and have found that it possible to use this data to develop and implement investment strategies: the most popular small cap stocks among hedge funds, for example, outperform the S&P 500 by 18 percentage points per year on average. Since inception 11 months ago, our own portfolio putting this theory into practice achieved an excess return of 33 percentage points above the S&P 500’s returns.
Our database also comes in handy for identifying stocks which are widely owned by the hedge funds and other investors we track. This is also true for a number of areas, including heavily shorted stocks. Using data from Fidelity and our own 13F database, here are the five most widely owned stocks among hedge funds with market capitalizations of at least $2 billion which also feature at least 20% of the total shares outstanding held short:
Topping our list with 63 filers in our database reporting a position is data center services company Equinix Inc (NASDAQ:EQIX). The stock is quite expensive, even in terms of forward earnings estimates (the P/E on that basis is over 40). Hedge funds’ interest in the company is likely predicated on Equinix Inc (NASDAQ:EQIX)’s move to convert the company to a real estate investment trust, on the theory that the IRS should consider its data centers to be real estate; earlier this year the IRS did indicate that they would give more scrutiny to REIT applications. Billionaire Andreas Halvorsen’s Viking Global was buying Equinix Inc (NASDAQ:EQIX) last quarter (see Halvorsen’s stock picks).
Billionaire Bill Ackman’s Pershing Square is reportedly dumping its stake in J.C. Penney Company, Inc. (NYSE:JCP), but the troubled department store will remain a battleground stock as other funds have charged in to try their hand at turning it around. On the other side of the coin, revenue was down 12% in its most recent quarter compared to the same period in the previous fiscal year, Wall Street analysts expect it to continue to be unprofitable next year, and J.C. Penney Company, Inc. (NYSE:JCP) may even need to raise additional capital this year. Nearly 30% of total shares outstanding are held short as a result.
It’s Ackman again! He’s been public regarding his large short of Herbalife Ltd. (NYSE:HLF), contributing to the multilevel marketer’s high short interest. However, federal regulators have shown no clear sign of imminent legal action against the company and financial results continue to be good. With the stock currently featuring trailing and forward P/Es of 14 and 11, respectively, it has been getting increased interest among the filers we track. Ackman archrival Carl Icahn’s Icahn Capital reported a position of nearly 17 million shares of Herbalife at the end of Q2 (check out more stocks Icahn owns).
A list of heavily shorted stocks isn’t really complete without at least one for-profit education company, and our database shows 31 hedge funds and other notable investors with positions in Apollo Group Inc (NASDAQ:APOL). Value investor Joel Greenblatt was moving into the stock between April and June (research more stocks Greenblatt has been buying). Revenue dropped 16% in Apollo’s fiscal Q3 (which ended in May) versus a year earlier, and earnings were down more than 40%. Analysts expect EPS to continue to decline, though if the company could stabilize next year it might be a value opportunity at a forward P/E of 10.
Disclosure: I own no shares of any stocks mentioned in this article.
