These Are US Hedge Funds’ Favorite European Stocks

European markets have had a disappointing year so far, with the Euro Stoxx 50 Index down by some 5% year-to-date. European equities did bounce back from their February lows, driven to a large extent by the European Central Bank’s (ECB) bond purchase program, which has provided excess liquidity to the markets. However, recently, the ECB President has not provided any updates on whether the central bank plans to extend its bond purchase program. European equities have seen a pullback on this development.

However, despite the weak performance of European stocks compared to the U.S., there are some attractive valuations. Given that U.S. equity valuations are close to record high levels, U.S. hedge funds are exploring opportunities in Europe. Here are some European stocks that are trading on the US stock market and on which the smart money investors from our database are collectively bullish on.

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).

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Shire PLC (ADR) (NASDAQ:SHPG)’s improving fundamentals have led to hedge funds raising their bet on the company. At the end of June, 64 of the 749 hedge funds we track held $3.77 billion worth of Shire shares, which translates into 56.70% of Shire’s total outstanding stock. A quarter earlier, 49 funds held $2.57 billion worth of stock. Shire’s stock has had a mixed year so far. While the stock has bounced back following the sell-off seen at the start of this year, it is still down by more than 5% year-to-date and is well below its 52-week high of $231.32. In August, Shire posted its second-quarter results, which included revenue of  $2.43 billion, $220 million above the estimates, while EPS of $3.38, topped expectations of $2.29. Recently Shire PLC (ADR) (NASDAQ:SHPG) has extended its agreement with Kamada Ltd. (NASDAQ:KMDA), with the latter producing GLASSIA (Alpha-1 Proteinase Inhibitor) through 2020. Shire is the exclusive distributor of GLASSIA in the US, Canada, Australia and New Zealand.

The funds from our database amassed different classes of Liberty Global’s stock heading into the third quarter. The most popular was Liberty Global plc- Class C Ordinary Shares (NASDAQ:LILAK), in which 62 funds held $1.16 billion worth of stock at the end of June, significantly higher than 31 funds with stakes worth $458.34 million a quarter earlier. In addition, 60 funds held Liberty Global’s Class C stock and 51 investors owned class A shares. Recently, Liberty Global has entered into a deal with Netflix Inc. (NASDAQ:NFLX), under the terms of which the company will integrate Netflix’s app into its cable systems across more than 30 countries. The agreement will kick-off with Netherlands, where Netflix will be launched on Liberty’s Horizon box. The rollouts will continue through 2017.

Read about two other European stocks that have seen interest from U.S. hedge funds on the next page.

NXP Semiconductors NV’s (NASDAQ:NXPI) had 57 funds tracked by us long its shares at the end of the second quarter, holding $1.4 billion worth of stock, compared to 52 funds and $1.64 billion a quarter earlier. NXP Semiconductors has been in the spotlight lately and its stock surged at the end of September amid rumors that QUALCOMM, Inc. (NASDAQ:QCOM) might acquire it in a deal that could be worth more than $30 billion. Seeing as NXP is one of the leading chipmakers for the automotive industry, it’s not surprising that QUALCOMM is interested, but so are other companies, like Intel Corporation (NASDAQ:INTC) or Texas Instruments (NYSE:TXN). As semiconductor space is suffering from a declining PC market and a slowdown in smartphone space, experts anticipate the industry consolidation to continue and NXP semiconductors is one of the most interesting targets for an acquisition.

The number of funds holding shares of Jazz Pharmaceuticals plc- Ordinary Shares (NASDAQ:JAZZ) rose to 46 from 34 during the second quarter and the total value of their holdings surged to $4.38 billion from $546.31 million and amassed 51.30% of Jazz Pharmaceuticals shares at the end of June. The stock is down by around 12% since the beginning of the year. Back in July, Jazz Pharmaceuticals plc- Ordinary Shares (NASDAQ:JAZZ) completed the acquisition of Celator and earlier this month it started the rolling submission of its New Drug Application of Vyxeos, a drug for the treatment of accute myeloid leukemia, which Jazz obtained via acquiring Celator. The company plans to complete the filing of NDA to the US Food and Drug Administration early next year. For the second quarter, Jazz Pharmaceutical’s earnings came in at $2.63 per share, well below the consensus estimate of $2.80 per share, while revenue of $381.16 million topped the estimates of $376.42 million.

At the end of June, there were 43 funds from our database long LyondellBasell Industries NV (NYSE:LYB), holding $1.42 billion worth of shares, significantly lower than 54 funds with $2.35 billion worth of stock a quarter earlier. Last month, Saudi Arabia’s oil company, Saudi Aramco, made a bid to acquire LyondellBasel Industries NV (NYSE:LYB) refinery in Houston and was considered to be one of the front-runners, although a deal has not been officially announced. The deal would allow Saudi Aramco to expand its operations in the US, but the recent “9/11 bill” passed by the US congress, which allows families of 9/11 victims to sue Saudi Arabia, might create tensions between the governments of two countries and jeopardize any potential deal.

Disclosure: none