At Insider Monkey, we track 450 of the world’s most elite hedge fund managers and prominent investors. Our research has shown that over time, their best picks routinely outperform. For more than a decade in our back tests, our strategy beat the market by 18 percentage points a year, and since we’ve started sharing these picks with the public, it has outpaced the S&P 500 by more than 20 percentage points (learn how to use this strategy yourself).
Clough Capital Partners, managed by Charles Clough, is nicely diversified with stocks from the financial, technology, healthcare and consumer goods sectors, according to the latest 13F filing with the SEC. Let’s take a look at the top five picks of the $5 billion hedge fund.
Number one is banking giant Bank of America Corp (NYSE:BAC). Trading in Bank of America this year is not for the faint-hearted, as the stock has gyrated between $11 and $12 per share in very active trading. Fortunately for the bulls, there are enough positives fundamentally to keep the bears at bay. For starters, Bank of America Corp (NYSE:BAC) is priced fairly cheap compared to the rest of the banking sector, valued at a mere 60% of book value parity versus an industry average around 100%. Merrill Lynch has also surpassed Goldman Sachs and JP Morgan in investment banking activity this year, and the housing market improvement—and subsequent need for mortgages—will have the expected impact on Bank of America Corp (NYSE:BAC)’s bottom line. However, the stock is looking technically vulnerable above the $12.50 mark, as it continues to succumb to profit taking at each test of this level.
At number two is Google Inc (NASDAQ:GOOG). Clough Capital increased its position in Google by 25% during the fourth quarter for very good reason. With the impending release of the Samsung Galaxy S IV and a recent endorsement from IDC—which expects Android to power more tablets than Apple Inc. (NASDAQ:AAPL)—the outlook for Google Inc (NASDAQ:GOOG) is unmistakably bullish.
Shares of the tech giant are not only outperforming both the S&P and NASDAQ, but also their closest competitors: Yahoo! Inc. (NASDAQ:YHOO), Microsoft Corporation (NASDAQ:MSFT) and Apple. The next target for Google Inc (NASDAQ:GOOG) is $850—technical resistance—but analysts are looking for a test of $1,000 by the end of the year.
Coming in at number three is Citigroup Inc. (NYSE:C). After increasing his position in Citigroup for most of last year, Clough has cut 32% off his portfolio…why may this have been the case?
The stock is starting to show fatigue at the $47 to $48 per share level, which could be the result of a lackluster earnings report last quarter. Net income, EPS and revenue are all down for FY2012 compared to one year earlier. Although the banking sector is getting a boost from the bullish outlook on housing, there are plenty of other banking stocks that look much more attractive than Citigroup, such as Wells Fargo, for example. Check out one hedge fund manager who has been buying Wells Fargo lately; hint: his name is Warren Buffett.
A new addition to Clough Capital is American International Group Inc (NYSE:AIG), number four of its top five equity picks. After its 11th hour bailout by the government in 2009 as a result of AIG’s disastrous decision to underwrite credit-default swaps on mortgage-backed securities, the insurer has returned to its core business. The leaner, meaner insurer’s stock price has climbed steadily off its 2011-low near $20 per share, last trading just below the $40 mark. Less than impressive financials, however—2012 revenue is down 45% from 2011—and competition from Hartford, American Financial and other insurance companies, has many analysts recommending a HOLD for AIG at the moment. Still, this stock was hedge funds’ new No. 1 in Q4, so it’s worth paying attention to the smart money’s sentiment.
Rounding out Clough’s top five is the tax and banking service provider H&R Block, Inc. (NYSE:HRB). Because of the delay in the 2013 tax-filing season from last year’s fiscal-cliff debacle, and subsequent action by the IRS to delay submission of certain returns until Jan 29th, revenue in H&R’s tax services sector was down almost 30%. The company deferred $15 million of revenue to its fiscal 4Q, which caused some pressure on the stock price at the start of the year. Shares have, however, surged 8.9% to a four-and-a-half year high of $28.27 of late, on the heels of remarks by CEO William Cobb that this year’s filings will grow by 1% to 2%. Broadly speaking, H&R is planning to take full advantage of taxpayers’ anticipated confusion over the change in tax laws and implementation of Obamacare this year. It’s easy to see why this hedgie is bullish.
Each of these investments represents obvious upside, but the one common thread that exists among the five is that they’re supported by the smart money at large. In fact, only H&R Block sits outside of the hedge fund industry’s consensus top ten, and AIG is smart money’s new No. 1 holding. Check out who the insurer displaced, here on Insider Monkey.
Click here to learn more about Insider Monkey’s Hedge Fund Newsletter
Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.
Disclosure: none
