We track 13F filings from hedge funds and other notable investors for a variety of purposes. For one, this information is useful in developing investment strategies; we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average (learn more about our small cap strategy) and we think that other techniques are possible as well. We can also track individual funds’ favorite stocks in a number of areas, including high yield picks, so that investors can research these names further if they seem interesting. Read on for our quick take on five stocks from Phil Gross and Robert Atchinson’s large hedge fund Adage Capital Management’s portfolio as of the end of December with yields of 3.5% or higher judging by current prices and dividend levels (or see the full list of stocks the fund reported owning):
One of Adage’s five largest holdings by market value at the end of the fourth quarter of 2012 was Philip Morris (NYSE:PM). The international cigarette company formed by the split of the old Philip Morris organization pays a dividend yield of 3.7%. It has already reported its results for the first quarter of 2013, with both revenue and earnings coming in essentially even with their levels a year earlier. Billionaire Ken Fisher’s Fisher Asset Management slightly increased its own holdings of Philip Morris during Q4, closing December with 5.7 million shares in its portfolio (research more stocks Fisher was buying).
The fund cut its stake in General Company Electric (NYSE:GE) by 23% but still owned over 12 million shares according to the filing. General Company Electric (NYSE:GE)’s earnings were up considerably last quarter compared to the first quarter of 2012, but sales were about flat and so we are skeptical that the company can continue to grow its net income at the same rate. While the dividend yield is nice, the trailing P/E of 16 means the stock is not a good value without further improvements on the bottom line. D.E. Shaw, a large hedge fund managed by billionaire David Shaw, disclosed ownership of over 11 million shares (find D.E. Shaw’s favorite stocks).
AT&T Inc. (NYSE:T) was another of Adage’s high yield picks- quite a high yield pick, in fact, with recent dividend payments implying a current yield of 4.7%. At a beta of 0.4, AT&T Inc. (NYSE:T)also meets the criteria for a defensive stock as well as being an interesting prospect for income investors. In terms of value, the stock is dependent on a stronger 2014 though analyst consensus for that year implies a reasonable forward earnings multiple of 14. Cliff Asness’s AQR Capital Management was another major shareholder of AT&T Inc. (NYSE:T) according to that fund’s own 13F (check out Asness’s stock picks).
Gross, Atchinson, and their team moved heavily into Raytheon (NYSE:RTN) between October and December, and had 4.2 million shares in their portfolio. Investors have been concerned about Raytheon potentially seeing less business due to cuts in U.S. military spending, and the stock now trades at 10 times earnings whether we consider trailing results or forecasts for 2014. The dividend yield is nearly 4%, though net income has already been slipping. Raytheon was one of value investor Joel Greenblatt’s largest holdings at the end of 2012 (see more stocks Greenblatt likes).
Adage included Verizon Communications Inc. (NYSE:VZ) as well as AT&T Inc. (NYSE:T) in its portfolio, reporting a position of 3.9 million shares. Similarly to that peer, there is a high yield here- 3.9%- and Verizon Communications Inc. (NYSE:VZ) has little connection to the broader economy with a beta of 0.3. We would note that Verizon Communications Inc. (NYSE:VZ) may be in the process of buying the remainder of Verizon Communications Inc. (NYSE:VZ) from Vodafone Group Plc (ADR) (NYSE:VOD), and so investors should be prepared for any effects of a transaction on Verizon’s stock price. Renaissance Technologies, founded by billionaire Jim Simons, owned 2.3 million shares of Verizon Communications Inc. (NYSE:VZ) after buying shares during Q4.
Disclosure: I own no shares of any stocks mentioned in this article.
