The 10 Most Popular Stocks Among Hedge Funds, Part II

The deadline for the latest 13F filing period came and passed on Monday, and our team toiled through the day and night to process the hundreds of filings that poured in from the top money managers we track at Insider Monkey. With the results tabulated, we now have access to the latest collective stock ownership figures of the world-class funds that we monitor, and will begin to utilize it by looking at the top ten stocks held by them as of September 30. Let’s find out how hedge funds traded their top picks amid the brutal market conditions of the third quarter and which stocks they liked the most coming out of it. And be sure to check out Part I of the Most Popular Stocks Among Hedge Funds feature, listing their top five stock picks.

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10. Time Warner Cable Inc (NYSE:TWC)

 – Elite Investors with Long Positions (as of September 30): 107

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $16.16 Billion

After a surge in popularity among top investors during the second quarter, brought about by its definitive merger agreement with Charter Communications, Inc. (NASDAQ:CHTR), which was announced in late-May, interest in Time Warner Cable Inc (NYSE:TWC) among the investors that we follow remained steady during the third quarter. Hedge fund ownership soared to 105 from 83 in the second quarter, and inched up by another two funds during the third quarter. After a failed merger attempt with Comcast Corporation (NASDAQ:CMCSA), the consensus is that the Charter/Time Warner Cable mashup has a much better chance of success, though it is not without vocal opposition from TV broadcasters and DISH Network Corp (NASDAQ:DISH), among others. John Paulson’s Paulson & Co. maintained its 8.12 million-share position in Time Warner Cable Inc (NYSE:TWC) throughout the third quarter.

9. Bank of America Corp (NYSE:BAC)

 – Elite Investors with Long Positions (as of September 30): 108

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $6.45 Billion

Bank of America Corp (NYSE:BAC) was a popular addition to many smart money portfolios during the third quarter. The number of investors holding the stock jumped by 13 during the quarter, although the value of their holdings did decline by $1.28 billion, which suggests that a lot of the new positions weren’t overly big. Instead, the stock was being viewed as a safe place to store some capital amid the turbulence, with the added bonus of a possible rate hike in the near term having the potential to give the stock a jolt. Bank of America Corp (NYSE:BAC) has indeed had a strong rebound in the fourth quarter, gaining nearly 13% after an 8% loss in the third quarter. Bank of America’s P/E of 13.00 is on par with the industry average, while its price-to-book ratio of just 0.8 stands under it. Doug Silverman and Alexander Klabin‘s Senator Investment Group was one of the investors that we track to take up a position in Bank of America during the third quarter, owning 7.5 million shares on September 30.

8. Delta Air Lines, Inc. (NYSE:DAL)

 – Elite Investors with Long Positions (as of September 30): 109

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $7.32 Billion

Delta Air Lines, Inc. (NYSE:DAL) was one of the few stocks to not only survive the third quarter, but thrive during it. Shares gained 9% during the quarter and have carried their strong second half of the year into the fourth quarter, gaining another 9%. Hedge funds remained high on the stock, although sentiment did dip slightly during the third quarter, as a net five funds moved out of the stock and it fell from their sixth-most popular pick to eighth in the process. While Delta Air Lines, Inc. (NYSE:DAL) has benefited from gas price tailwinds this year, an ugly headwind arose in Paris last week that sent shares down to start this week amid fears that the global appetite for travel will decrease in the near term. Paul Ruddock and Steve Heinz‘s Lansdowne Partners continues to be the largest Delta shareholder in our database, owning 26.57 million shares on September 30.

Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by over 53 percentage points (read more details here).

See hedge funds’ seventh and sixth-ranked stock picks on the following page.

7. Amazon.com, Inc. (NASDAQ:AMZN)

 – Elite Investors with Long Positions (as of September 30): 113

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $14.98 Billion

Amazon.com, Inc. (NASDAQ:AMZN)’s strong results are making a believer out of many investors, as it pushed into the top ten from being ranked 11th a quarter earlier. 113 investors in our database were long Amazon on September 30, up from 103 on June 30. The value of their positions also soared by $4.5 billion, helped along by the 18% appreciation in the stock during the quarter, a rarity in the tough quarter. Amazon is finally delivering income that analysts long worried would never come, buoyed by the rapidly growing success of Amazon Web Services, which pulled in $2.1 billion in revenue in the most recent quarter, and hundreds of millions of dollars in profit. That may be just a drop in the bucket of its revenue potential, as a recent report from Morgan Stanley (NYSE:MS) predicts that number could rise to $20 billion annually by 2020. Chase Coleman‘s Tiger Global became a lot more bullish on Amazon in the third quarter, adding 2.45 million shares to its position, lifting it to the second spot in the firm’s $8.12 billion public equity portfolio.

6. Microsoft Corporation (NASDAQ:MSFT)

 – Elite Investors with Long Positions (as of September 30): 113

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $19.31 Billion

Microsoft Corporation (NASDAQ:MSFT) is the final entrant in part II of our most popular stocks list (don’t forget to check out part I). There was also an increase in ownership of Microsoft during the third quarter, though unlike Amazon, its stock was essentially flat during the period. There were six more investors in our database long Microsoft by the end of the quarter, and the value of their stakes ticked up by $1 billion. While the third quarter results were different than Amazon’s, the fourth quarter results have been the same, with each stock making big gains and rewarding their new shareholders. Microsoft is up by over 21% now in the fourth quarter, pushing its year-to-date gains to over 14%. Investors are pleased with Microsoft Corporation (NASDAQ:MSFT)’s transition towards being a service-based company, rather than primarily a software one, as cloud revenue and usage rates for Office 365 soar. Jeffrey Ubben’s ValueAct Capital remains a staunch supporter of Microsoft, holding over 75.27 million shares on September 30.

Disclosure: None