Most Popular Canadian Stocks Among Hedge Funds

After falling severely in the period between last year, Canadian equities are witnessing an equally strong rally in 2016. The magnitude of the rally can be gauged by the year-to-date performance of the S&P/TSX Composite index, which has appreciated by over 12%. In comparison, the S&P 500 currently trades with a year-to-date gain of 6.40% and the EURO STOXX 50 is down 7.80% so far in 2016. Considering this bull run that stocks in the neighboring country are experiencing, we at Insider Monkey thought of compiling a list of Canadian stocks listed on American exchanges based on their popularity among the over 800 hedge funds we track. In this post, we will be revealing the five stocks that topped our list and will be discussing their respective performance this year.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5 Encana Corp (USA) (NYSE:ECA)

– Investors with long positions (as of March 31) : 28

– Aggregate value of investors’ holdings (as of March 31): $717.87 million

Let’s begin with energy producer Encana Corp (USA) (NYSE:ECA), which saw its ownership among funds covered by us inch up by two and the aggregate value of their holdings in it jump 125% during the first quarter. A large part of that increase in hedge funds’ holdings can be attributed to the almost twenty-fold increase that billionaire Andreas Halvorsen’s Viking Global made to its stake in the company during the first quarter, increasing its holding to 80.58 million shares and becoming the largest shareholder of the company among funds in our database at the end of March. Driven by the rally in crude oil prices, shares of Encana Corp (USA) (NYSE:ECA) have appreciated by a whopping 62% so far this year. In its latest financial results, Encana posted a surprise adjusted profit of $0.10 per share, which surpassed the estimated loss of $0.08 per share, while its non-adjusted loss shrunk to $601 million from $1.61 billion a year earlier, as the company has been implementing cost-cutting measures and selling assets to focus on its core segments.

#4 Restaurant Brands International Inc (NYSE:QSR)

– Investors with long positions (as of March 31) : 31

– Aggregate value of investors’ holdings (as of March 31): $2.89 billion

Restaurant Brands International Inc (NYSE:QSR)’s stock has largely been range bound since it started trading after the completion of $12.5 billion merger between Burger King  and Tim Hortons in December 2014. It has registered gain of 21% so far in 2016 and is trading close to its 52-week high of $45.26. During the first quarter, the number of funds tracked by us long Restaurant Brands International Inc (NYSE:QSR) inched up by two and the aggregate value of their holdings in it increased marginally by 0.07%. Funds that ncreased their stake in the company during that period included Bill Ackman‘s Pershing Square, which brought its holding up by 4% to 39.15 million shares.

#3 Magna International Inc. (USA) (NYSE:MGA)

– Investors with long positions (as of March 31) : 32

– Aggregate value of investors’ holdings (as of March 31): $660.33 million

Despite its stock ending the first quarter with a gain of 6.6%, the ownership of Magna International Inc. (USA) (NYSE:MGA) among funds covered by us decreased by six and the aggregate value of their holdings in it declined by almost 50% during that time. Legendary trader Paul Tudor Jones’ Tudor Investment Corp was one of the hedge funds that sold its entire stake in the company during the first quarter. Over the past year, shares of the automotive supplier have lost 27.73% of their value. However, this decline has helped in increasing the annual dividend yield of the stock, which currently stands at 2.57%. Most analysts feel that trading at a trailing price-to-earnings multiple of 8.58 and a price-to-book multiple of 1.65, Magna International Inc. (USA) (NYSE:MGA)’s stock is extremely cheap right now. On May 7, analysts at RBC Capital reiterated their ‘Outperform’ rating on the stock, while upping their price target on it to $76 from $72, which represents a potential upside of 83% from the stock’s current trading price.

#2 Canadian Pacific Railway Limited (USA) (NYSE:CP)

– Investors with long positions (as of March 31) : 36

– Aggregate value of investors’ holdings (as of March 31): $3.03 billion

The decline in commodity prices last year took a heavy toll on Canadian Pacific Railway Limited (USA)(NYSE:CP)’s stock, which ended 2015 down by over 30%. Nevertheless, the stock is performing well this year and it looks like several hedge funds were already anticipating this move. That’s because the number of hedge funds covered by us long Canadian Pacific Railway Limited (USA) (NYSE:CP) rose by seven during the first quarter, even though the aggregate value of their holdings in it remain largely unchanged. Funds that initiated a stake in Canadian Pacific Railway Limited during the first quarter included Dmitry Balyasny‘s Balyasny Asset Management, which purchased 435,486 shares of the company. Last week, Canadian Pacific released its second-quarter results, which included EPS of CAD 2.05 ($1.55), beating estimates by CAD 0.01, while the revenue of CAD 1.45 billion slid by over 12% on the year and missed the estimates by CAD 20 million.

#1 Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

– Investors with long positions (as of March 31) : 71

– Aggregate value of investors’ holdings (as of March 31): $3.14 billion

Despite its ownership among hedge funds covered by us declining by 12 and the aggregate value of their holdings in it falling by a whopping $9.14 billion, troubled pharmaceutical company Valeant Pharmaceuticals Intl Inc (NYSE:VRX) still remained the most popular Canadian stock at the end of that period among funds we cover. The company has lost 77% so far in 2016 and there seems to be no bottom for its stock at present as it trades around the $23 level. Even after this humongous fall in the stock, one of the company’s major backer Pershing Square hasn’t lost its conviction on the stock and in a recent conference call reiterated its bullish position. During the first quarter, Pershing  increased its stake in the company by 31% to almost 21.6 million shares. On June 7, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) came out with its first quarter numbers, declaring EPS of $1.27 on revenue of $2.37 billion versus analysts’ expectation of EPS of $1.37 on revenue of $2.34 billion.

Disclosure: None