Hedge Funds Are Hoarding Shares of These 5 Mid-caps

Mid-cap stocks offer the best of both worlds to investors. When investing for the long-term, their upside potential is better than that of large-cap stocks, whereas the risk associated with investing in them is usually much less than their small-cap counterparts. Since the mid-cap universe consists of a large number of stocks, selecting the best stocks within it is a challenging job for retail investors. To make that easier, we at Insider Monkey regularly scan the portfolios of the more than 800 hedge funds and prominent investors in our database to identify the stocks that are the most popular among them. In this article, we will take a look at the five mid-cap companies in which the investors in our database owned the highest concentration of shares collectively as of December 31.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012.(see the details here).

#5 Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT)

 – Investors with Long Positions (as of December 31): 52

 – Aggregate Value of Investors’ Holdings (as of December 31): $3.25 billion

 – Percentage of Common Stock Owned by Investors (as of December 31): 27.80%

During the fourth quarter, the number of long positions in Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) among the funds that we track increased by five, however, the aggregate value of their holdings of the stock saw a decline of $355 million. Even after reducing its stake in the company by 26% to 11.6 million shares, billionaire John Paulson‘s Paulson & Co remained the largest shareholder of the company among the funds in our database. On March 14, shares of the company surged by nearly 8% after Marriott International Inc (NASDAQ:MAR) reaffirmed its commitment to acquire it. This reaffirmation came after Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) notified Marriott International on March 11 that it had received an unsolicited indication of interest for acquisition by a consortium of investors led by Anbang Insurance Group.

#4 Liberty Interactive Group (NASDAQ:QVCA)

 – Investors with Long Positions (as of December 31): 71

 – Aggregate Value of Investors’ Holdings (as of December 31): $4.88 billion

 – Percentage of Common Stock Owned by Investors (as of December 31): 28%

The number of investors in our system with long positions in Liberty Interactive Group (NASDAQ:QVCA) increased by four and the aggregate value of their holdings in the company rose by $664 million during the fourth quarter. Billionaire Barry Rosenstein‘s JANA Partners was among the hedge funds that initiated a stake in the company during that period, purchasing 8.08 million shares. Though the broader market has recovered from the decline it saw at the beginning of the year, shares of Liberty Interactive Group (NASDAQ:QVCA) are still trading down by over 7% year-to-date. Analysts at FBR & Co. recently issued their earnings estimate for the company for the first quarter. They expect Liberty Interactive to report EPS of $0.19 for the quarter, much lower than the consensus estimate of $0.22. Furthermore, the analysts lowered their price target on the stock to $31 from $38 on March 9, while keeping their rating on it unchanged at ‘Outperform’.

#3 Autodesk, Inc. (NASDAQ:ADSK)

 – Investors with Long Positions (as of December 31): 34

 – Aggregate Value of Investors’ Holdings (as of December 31): $3.95 billion

 – Percentage of Common Stock Owned by Investors (as of December 31): 28.8%

Amid a 38% rise in Autodesk, Inc. (NASDAQ:ADSK)’s stock during the fourth quarter, its ownership among the funds in our system increased by two, while the aggregate value of their holdings in it swelled by over 90%. Scott Ferguson‘s Sachem Head Capital and Stephen Mandel‘s Lone Pine Capital each initiated a stake in the company during that period, purchasing nearly 12.9 million shares and 5.73 million shares, respectively. Those shares of Autodesk, Inc. (NASDAQ:ADSK) have recouped some of the losses they suffered earlier in the year, thanks to the company reporting better-than-expected fourth quarter results on February 25, however they still trade down by 8.5% year-to-date.  While the Street had expected the company to report EPS of $0.11 on revenue of $631.10 million for the quarter, Autodesk, Inc. reported EPS of $0.21 on revenue of $648 million. On March 12, analysts at JPMorgan Chase & Co. reiterated their ‘Buy’ rating on the stock.

#2 TransDigm Group Incorporated (NYSE:TDG)

 – Investors with Long Positions (as of December 31): 55

 – Aggregate Value of Investors’ Holdings (as of December 31): $4.09 billion

 – Percentage of Common Stock Owned by Investors (as of December 31): 33.40%

Moving on, aircraft component supplier TransDigm Group Incorporated (NYSE:TDG) was in the portfolios of 55 hedge funds in our system on December 31, up by four quarter-over-quarter. Shares of TransDigm Group Incorporated (NYSE:TDG) slumped hard after it reported dismal fiscal year 2016 first quarter numbers in early-February, but have recovered since then and now trade down by only 3.46% year-to-date. Following the earnings release, several analysts lowered their price targets on the stock. Among them were analysts at Goldman Sachs who lowered their price target to $256 from $272. Analysts are concerned that the company is betting big on acquisitions for growth instead of focusing on organic growth and that in that process it has lowered its M&A standards, with its recent acquisition of Breeze-Eastern Corporation being a case in point. Alan Fournier‘s Pennant Capital Management cut its holding in the company by 26% to 878,736 shares during the fourth quarter.

#1 FleetCor Technologies, Inc. (NYSE:FLT)

 – Investors with Long Positions (as of December 31): 51

 – Aggregate Value of Investors’ Holdings (as of December 31): $4.82 billion

 – Percentage of Common Stock Owned by Investors (as of December 31): 36.60%

FleetCor Technologies, Inc. (NYSE:FLT) shares went nowhere during the fourth quarter, as did its ownership among the funds that we track, which inched down by one during the period. Nonetheless, FleetCor ended up topping our list as the mid-cap stock with the highest percentage of its shares being owned by investors in our database. With ownership of over 6.4 million shares of the company, Stephen Mandel’s Lone Pine Capital helped contribute greatly to that ownership total. On March 15, FleetCor Technologies, Inc. announced that it has agreed to acquire Brazilian electronic toll payment company STP for $1.05 billion. The 14 prominent analysts and research houses that cover FleetCor Technologies, Inc. (NYSE:FLT)’s stock currently have an average rating of ‘Overweight’ and an average price target of $149.67 on it, which represents a potential upside of 6.6% from the stock’s current trading price.

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