Investor sentiment towards the financial sector has taken a number of hits over the past several years. During the financial crisis, many supposedly safe institutions went bankrupt, were acquired for a fraction of the previous stock price, or lost the majority of their market capitalization. Paradoxically, some firms that survived the financial crisis- most notably Goldman Sachs saw heavy public criticism precisely for doing so. Consumer anger towards major commercial banks remains high, and JPMorgan Chase’s London Whale losses reminded investors and the general public that investment banks can lose a good deal of money if risk management turns out to be poor. As a result, earnings multiples in the sector are moderately low and many hedge funds and other large investors are buying. According to our database of 13F filings, here are the ten most popular financial stocks among hedge funds for the second quarter of 2012:
Citigroup Inc. (NYSE:C). A number of hedge funds left Citigroup in the second quarter- 83 funds reported positions in the stock at the end of June, down from 100 at the beginning of April- but it still managed to place as the top financial stock. Citigroup trades at 9 times trailing earnings and at half its book value. Billionaire David Tepper’s Appaloosa Management increased its take 52% during the second quarter (see more stock picks from David Tepper).
Bank of America Corp (NYSE:BAC). Like Citigroup, Bank of America has a trailing P/E of 9 and a low P/B ratio (0.4 in this case). Of course, it is also another megabank struggling with poor European macro conditions. 89 funds had owned the stock at the end of March, but by the end of the quarter only 80 did. Bruce Berkowitz’s Fairholme still owned over 100 million shares.
JPMorgan Chase & Co. (NYSE:JPM). Along with Citigroup and Bank of America, JPMorgan Chase made our list of the most popular stocks among hedge funds for the second quarter, joining stocks such as Apple and Google. 78 funds owned JPMorgan Chase at the end of the quarter, down from 82. The stock is up 8% since the beginning of July.
Wells Fargo & Company (NYSE:WFC). 72 filers reported positions in Wells Fargo, down 10 from a quarter ago. Wells Fargo is of course Warren Buffett’s bank of choice (find more of Warren Buffett’s favorite stocks). However, compared to the three peers placing higher on the list, Wells Fargo is a bit higher priced: its trailing P/E is 12 and its P/B is 1.3.
American International Group, Inc. (NYSE:AIG). AIG saw a number of hedge funds getting in during the quarter, rising from 47 hedge fund holders to 58. The recovering insurer trades at 10 times expected earnings for next year, and like the megabanks its P/B is fairly low at 0.6. Blue Ridge Capital was one of the funds initiating a position, reporting over $300 million in AIG stock after not owning any at the end of March.
Morgan Stanley (NYSE:MS). Morgan Stanley’s problems haven’t been as high profile as have those of other financial institutions, but the stock is just barely up for the year, underperforming the broader market. 51 hedge funds, including billionaire Ken Griffin’s Citadel Investment Group, had a Morgan Stanley position at the end of the second quarter, up from 35.
Berkshire Hathaway Inc. (NYSE:BRK.B). “Are you a better investor than Warren Buffett? No? Then why isn’t Berkshire Hathaway your favorite stock?” So goes every value investor’s least favorite conversational trap. 50 hedge funds owned the holding company at the end of June, down from 53 at the beginning of the quarter. D.E. Shaw was one of the 50, owning 4.4 million shares.
Goldman Sachs Group, Inc. (NYSE:GS). 49 hedge funds reported a position in Goldman Sachs, down from 64 a quarter earlier. Renaissance Technologies, managed by billionaire Jim Simons, bucked the trend by initiating a position in the investment bank.
Metlife Inc (NYSE:MET). 43 hedge funds owned Metlife at the end of June, down from 49 at the beginning of April. Relational Investors sold a small portion of its stake and remained the largest holder of the stock in our database, with 7.9 million shares.
U.S. Bancorp (NYSE:USB). A small number of hedge funds left U.S. Bancorp during the quarter, bringing the number of owners down from 42 to 40. Andreas Halvorsen’s Viking Global was one of the funds reporting a position.
