Hedge Funds Are Buying These 10 Large-Caps, Part 1

After a consistent upswing for over six years, the equity markets finally went through a notable correction in the third quarter of this year. Though it made a few investors nervous, it also gave a few patient investors an opportunity to buy their favorite stocks at a cheaper price. In our endeavor to keep our readers informed about the latest trading patterns of top investors, we at Insider Monkey decided to compile a list of the top 10 mid-cap stocks that hedge funds were buying during the volatile third quarter, which we did in a two-part article (Part I, Part II) published this week. Keeping up with that theme, this time we have another two-part article revealing the top 10 large-cap stocks whose popularity among hedge funds shot through the roof during the third quarter. This is the first of the two parts, listing five of the ten companies. Read on to know which large-cap stocks could be poised for good things.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

Priceline Group Inc (NASDAQ:PCLN)

 – Investors with Long Positions (as of September 30): 86

 – Aggregate Value of Investors’ Holdings (as of September 30): $7.08 Billion

Priceline Group Inc (NASDAQ:PCLN) was among the few stocks that ended the third quarter in the green (up by 7.4%) and hedge funds seem to have taken note of that. The number of hedge funds covered by Insider Monkey that were long the stock saw a quarter-over-quarter increase of 15 by the end of September. However, the aggregate value of their holdings in Priceline Group Inc (NASDAQ:PCLN) actually declined by $582 million during the same period, as some investors likely cashed out a portion of their holdings to take some profit during the difficult quarter. On November 16, shares saw a sharp decline after Priceline Group Inc provided conservative guidance for the fourth quarter. On Friday, the company announced that it will be investing an additional $500 million into China’s leading online travel portal, ctrip.com. Even after decreasing its stake in the company by 17% to slightly under 1.0 million shares during the third quarter, Stephen Mandel‘s Lone Pine Capital still remained the company’s largest shareholder at the end of September among the funds that we track.

EMC Corporation (NYSE:EMC)

 – Investors with Long Positions (as of September 30): 65

 – Aggregate Value of Investors’ Holdings (as of September 30): $3.36 Billion

Since shares of EMC Corporation (NYSE:EMC) declined sharply during January, they have largely remained range-bound throughout the year, barring the volatility they saw during the third quarter. While the stock of EMC Corporation (NYSE:EMC) declined by 8% during the third quarter, the number of hedge funds that were long EMC increased by 11 and the aggregate value of their holdings in it went up by 32% during the same period. Recently, wireless behemoth Verizon Communications Inc. (NYSE:VZ) revealed that it plans to strengthen its relationship with EMC Corporation to help Verizon’s customers make a smoother transition to cloud services. On November 23, analysts at Sanford C. Bernstein reiterated their ‘Outperform’ rating and $30 price target on the stock. Ahmet Okumus‘ Okumus Fund Management initiated a stake in EMC Corporation during the July-to-September period by purchasing over 7.0 million shares of the company.

Caterpillar Inc. (NYSE:CAT)

 – Investors with Long Positions (as of September 30): 40

 – Aggregate Value of Investors’ Holdings (as of September 30): $1.23 Billion

The fall in commodity prices across the board and the turbulence in the global economy has weighed heavily on Caterpillar Inc. (NYSE:CAT)’s stock this year, as it trades with year-to-date losses of over 27%. However, hedge funds haven’t lost faith in the company; to the contrary, they are lapping up its shares in droves. During the third quarter, when Caterpillar Inc. (NYSE:CAT)’s stock dropped by 22.2%, its ownership among funds in our database increased by 33% and the aggregate value of their holdings declined by just 9%. Even though its stock has slumped significantly this year, the Board of the company announced on December 9 that it will maintain its quarterly cash dividend of $0.77 per share. Considering the price at which Caterpillar Inc. currently trades, this quarterly dividend represents a lucrative dividend yield of 4.62%. Quant fund D E Shaw, founded by billionaire David E. Shaw, was among the hedge funds that increased its stake in Caterpillar Inc. significantly, by 366%, during the third quarter; it held 728,650 shares of the company as of September 30.

Capital One Financial Corp. (NYSE:COF)

 – Investors with Long Positions (as of September 30): 53

 – Aggregate Value of Investors’ Holdings (as of September 30): $1.46 Billion

Owing largely to the massive slump its stock saw on July 24 after the company declared its second-quarter results, Capital One Financial Corp. (NYSE:COF) ended the third quarter down by 17%. However, hedge funds saw this as an opportunity to go long. 12 more funds among those covered by us reported owning a stake in the company as of the end of September than did at the end of June, though the aggregate value of these investors’ holdings in the company did decrease by $451 million during that time. On December 1, Capital One Financial Corp. (NYSE:COF) announced the completion of its acquisition of General Electric Capital Corporation’s Healthcare Financial Services lending business. At a forward price to earnings multiple of 9.77,  Capital One Financial Corp.’s stock is currently trading considerably cheaper than its peers in the financial industry. Donald Chiboucis‘ Columbus Circle Investors increased its stake in the company by 5% to over 2.85 million shares during the third quarter.

Las Vegas Sands Corp. (NYSE:LVS)

 – Investors with Long Positions (as of September 30): 29

 – Aggregate Value of Investors’ Holdings (as of September 30): $260 Million

Las Vegas Sands Corp. (NYSE:LVS) had a disastrous third quarter, with its shares slumping more than 26.77%, but the popularity of the company among hedge funds skyrocketed during the same period. The number of funds covered by Insider Monkey that owned a stake in the company increased by over 50% during the quarter, and the aggregate value of their holdings remained nearly the same, despite the depreciation in the shares. For the third quarter, LVS reported EPS of $0.66 on revenue of $2.89 billion, versus analyst expectations of EPS of $0.64 on revenue of $2.98 billion. Billionaire Ken Griffin‘s Citadel Investment Group made a greater than eleven-fold increase to its stake in the company during the third quarter and held 439,298 shares of Las Vegas Sands Corp. (NYSE:LVS) at the end of September.

Disclosure: None