The 5 Most Popular Stocks Among Hedge Funds Going Into Q2

The U.S stock market had a tough first quarter. The S&P 500 Index, which had tumbled more than 10.5% by February 11, did manage to recuperate, ending the three-month period up by 0.77%. The Nasdaq Composite also bottomed out on February 11 and then rebounded, but ended the quarter with a 2.75% loss. Finally, there’s the Dow Jones Industrial Average, the best performer among major stock indexes; after hitting its February low, it recovered as well, concluding the quarter with a 1.49% gain. Nonetheless, with bears reigning Wall Street and sentiment low for much of the quarter, it was hard to find companies with institutional support that rose. However, the five firms in this list, which also happen to be the most popular among the hedge funds that we track, all saw hedge fund support increase over the first quarter.

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While there are many metrics that investors can assess in the investment process, the hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor to beat the S&P 500 by around 95 basis points per month (see the details here).

#5. Microsoft Corporation (NASDAQ:MSFT)

Fifth in this list is Microsoft Corporation (NASDAQ:MSFT), which fell as much as 11.2% during the first quarter, ending the period with a 0.45% loss. The depressed valuation was probably one of the elements that attracted new institutional investors to it. Between January and March, Windows’ parent company saw the number of hedge funds in our database long its stock rise by almost 3% to 144. Their combined stakes, worth more than $20.8 billion as of March 31, accounted for roughly 4.8% of the company’s total shares. Among the funds with large stakes in Microsoft Corporation (NASDAQ:MSFT) was Boykin Curry’s Eagle Capital Management, which held 30.8 million shares worth more than $1.7 billion at the end of the first quarter.

Microsoft has continued to tumble during the second quarter, losing 5.4%, mostly on the back of an earnings miss, when it delivered fiscal third quarter EPS of $0.62, missing the Street’s consensus by $0.02. Poor fiscal fourth quarter revenue guidance and declining Windows sales did nothing to help matters either. On Thursday, the company announced that it is partnering with Facebook Inc (NASDAQ:FB) to lay a high-capacity data-transfer cable across the Atlantic.

#4. Apple Inc. (NASDAQ:AAPL)

The fourth-most popular stock among the hedge funds that we track was Apple Inc. (NASDAQ:AAPL), which unlike Microsoft, posted a 3.54% gain in the first quarter. However, its stock price did fall over the first few weeks of the year, opening an attractive entry point for investors. Consequently, the number of hedge funds in our database long the stock rose by 14.2% over the quarter, to 152. While their stakes accounted for only 2.5% of the company’s float, they were worth over $14.8 billion on March 31. Apple Inc. (NASDAQ:AAPL) has failed to carry that momentum into the second quarter however, tumbling by almost 8.3% since April 1. A significant part of the decline was due to the company’s fiscal second quarter miss, its light fiscal third quarter guidance and the worrisome decline in iPhone sales.

To the surprise of many investors and analysts, one of the new shareholders of Apple in the first quarter was Warren Buffett’s Berkshire Hathaway, which started a new position comprised of 9.81 million shares. Another large Apple supporter was Ken Fisher’s Fisher Asset Management, which disclosed ownership of 11.31 million shares as of March 31. On the other hand, as readers probably remember, famed activist Carl Icahn, a long-time Apple bull, sold off his 45.76 million shares during the first quarter.

We count down the three most popular stocks among top investors on the next page.

#3. Facebook Inc (NASDAQ:FB)

Occupying the third position on this list is Facebook Inc (NASDAQ:FB), which witnessed a 12.3% surge in hedge fund support alongside a 9.02% rise in its stock price during the first quarter. As of March 31, 164 hedge funds in our system held 4.5% of the company’s float, or roughly $14.5 billion in stock. Facebook’s stock has continued to surge in the second quarter, posting returns of more than 4.5%, mostly on the back of a late April top and bottom-line beat; first quarter EPS of $0.77 and revenue of $5.38 billion were a hearty $0.15 and $120 million above estimates, respectively. Furthermore, a slew of analyst upgrades and price target increases have also helped to buoy the stock.

Andreas Halvorsen’s Viking Global acquired a massive new stake of 20.13 million shares of Facebook over the January-to-March period, amassing a position worth almost $2.3 billion by the end of the quarter, which vaulted Viking Global straight to the top of the charts in terms of shareholders that we track. Another big purchase was made by Alex Snow’s Lansdowne Partners; the British fund started a new position comprised of 3.71 million shares of the social media giant as of March 31.

#2. Allergan plc Ordinary Shares (NYSE:AGN)

The runner-up and only non-tech stock in this list is Allergan plc Ordinary Shares (NYSE:AGN), which counted the support of 170 funds in our database by the end of the first quarter, up by 13.2% from 159 at the end of 2015. The combined stakes of those 170 funds accounted for 19% of Allergan’s float as of March 31 and were valued at more than $20.1 billion. Earlier this week, the Japanese Ministry of Health, Labour and Welfare granted Allergan a National Marketing Authorization to sell BOTOX Vista for the treatment of crow’s feet in adult patients, in the country. Meanwhile, the U.S FDA accepted Allergan’s NDA for oxymetazoline HCl cream 1.0% for review, a product for the potential treatment of a symptom associated with rosacea.

Allergan plc Ordinary Shares (NYSE:AGN), which lost 14.23% during the first quarter, has continued to plummet in the second quarter, losing another 12.15%, taking its year-to-date decline down to 24.65%. Taking advantage of the tumbling share price, Seth Klarman’s Baupost Group initiated a new position in the company during the first quarter, of 1.72 million shares. The largest stake on March 31 was held by John Paulson’s Paulson & Co, and totaled 5.41 million shares.

#1. Alphabet Inc (NASDAQ:GOOGL)/(NASDAQ:GOOG)

Finally, there’s Alphabet, the most popular company among hedge funds, counting roughly 223 backers in our database. 155 funds among those we track were long Alphabet Inc (NASDAQ:GOOGL)’s Class A stock, while 142 were long Alphabet Inc (NASDAQ:GOOG)’s Class C stock, with 75 firms owning both classes of the company’s shares. The combined value of all of these stakes amounted to almost $30 billion on March 31. Shares of Alphabet, which lost almost 2% in the first quarter, are down by 2.3% in the second quarter, mostly on the back of a top and bottom-line miss. First quarter EPS of $7.50 missed estimates by $0.47, while revenue of $20.26 billion came in $110 million below the consensus estimate.

Among the main shareholders of Alphabet on march 31 was Viking Global, holding 2.05 million Class A shares worth roughly $1.56 billion and 1.05 million Class C shares worth about $786 million. Another large investor was Harris Associates, which declared holding 801,371 Class A shares, and 1.98 million Class C shares as of the end of March.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned in this article.