This Hedge Fund is Bullish on Finance, Tech and Healthcare Heading into Q4

Founded in early 2013 by Deepak Gulati, Argentiere Capital seeks to generate returns that are uncorrelated with the market by employing equity volatility strategies. Gulati headed JPMorgan Chase’s global equity proprietary trading prior to setting up his own shop. The market value of the fund’s equity portfolio stood at $151 million at the end of September. Given that Argentiere Capital recently disclosed its equity holdings as of the end of the third quarter, let’s take a closer look at Gulati’s top picks, which include JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C), American Airlines Group Inc (NASDAQ:AAL), Facebook Inc (NASDAQ:FB), and Pfizer Inc. (NYSE:PFE).

First, a little bit about us. We at Insider Monkey monitor hedge fund sentiment. Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 56% gain for the S&P 500 Index (see more details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

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#5 Pfizer Inc. (NYSE:PFE)

Shares held (as of September 30): 65,000
Total Value (as of September 30): $2.04 million
Percent of Portfolio (as of September 30): 0.70%

Despite various blockbuster drugs coming off patent in recent years, Pfizer Inc. (NYSE:PFE) has continued to deliver healthy profits and solid dividends. Shares are up 11.89% year-to-date, as the company has beaten analyst earnings expectations for nine quarters in a row. Pfizer has historically done well through M&A (having acquired the full rights to Lipitor by acquiring Warner-Lambert in 2000), and could be on to something equally as big, having acquired Hospira, one of the world’s leading makers of biosimilars and injectable drugs and infusion technologies. The global biosimilar market is estimated to be worth $20 billion by 2020 and the global market for generic sterile injectibles is estimated to be as big as $70 billion by the end of the decade. With a forward P/E of 14.4 and dividend yield of 3.29%, Pfizer is one of the cheaper stocks on the market today. Ken Fisher‘s Fisher Asset Management owns 31.93 million shares as of the end of September.

#4 Facebook Inc (NASDAQ:FB)

Shares held (as of September 30): 31,600
Total Value (as of September 30): $2.84 million
Percent of Portfolio (as of September 30): 0.98%

With the potential exception of Elon Musk, there is no better CEO in the business than Mark Zuckerberg. Under Zuckerberg’s leadership, Facebook Inc (NASDAQ:FB) has grown from a dorm room project to a website used by almost a billion people a day. The company has successfully adapted to the mobile age, and has acquired two of the fastest growing mobile applications in the world for low prices relative to their net worth, WhatsApp and Instagram. The social media giant is also making productive progress in videos, e-commerce, and could potentially challenge Google in search one day too. Its shares are up 24% year-to-date. Argentiere Capital thinks the rally can continue, as Facebook is a new position for the fund. Stephen Mandel‘s Lone Pine Capital also held 9.76 million shares of the company at the end of June.

#3 American Airlines Group Inc (NASDAQ:AAL)

Shares held (as of September 30): 90,000
Total Value (as of September 30): $3.5 million
Percent of Portfolio (as of September 30): 1.20%

Given a forward P/E of 7.08, low fuel prices, and big buybacks on the horizon, it’s not surprising that Argentiere Capital initiated a new stake of 90,000 shares in American Airlines Group Inc (NASDAQ:AAL) in the third quarter. Other hedge funds like the airline stock too. Our data show 85 funds (out of the around 730 that we track) owning around 9.2% of American Airline’s float at the end of June. Crude prices will eventually rise for one reason or another, dragging jet fuel price, but until that time comes, American Airlines will be using its cash flow to buy back a lot of stock that will increase its EPS and stock price.

#2 Citigroup Inc (NYSE:C)

Shares held (as of September 30): 91,000
Total Value (as of September 30): $4.52 million
Percent of Portfolio (as of September 30): 1.55%

Given Citigroup Inc (NYSE:C)’s tangible book value is $59 and Citigroup Inc (NYSE:C) stock is trading around $53, Citigroup is the cheapest major money center bank listed on the NYSE. Because Citigroup is the most international of all the major money center banks, its earnings have suffered disproportionately because of the strong dollar. In the long run, however, Citigroup’s international exposure will be a strength as international economies recover. Normalizing interest rates could act as a catalyst to send shares back up to tangible book value or higher. Boykin Curry‘s Eagle Capital Management is another shareholder of Citigroup with 24.37 million shares as of June 30.

#1 JPMorgan Chase & Co. (NYSE:JPM)

Shares held (as of September 30): 131,700
Total Value (as of September 30): $8.03 million
Percent of Portfolio (as of September 30): 2.76%

Argentiere Capital may have trimmed its stake in JPMorgan Chase & Co. (NYSE:JPM) by 20,900 shares in the third quarter, but it still owns 131,700 shares. JPMorgan Chase & Co. (NYSE:JPM) is the best bank money can buy, and it is led by the best CEO in the industry, Jamie Dimon. Under Dimon’s leadership, JPMorgan was profitable during the financial crisis and is even more profitable now. Earnings should rise as interest rates are increased. Aside from Argentiere,  Lansdowne Partners disclosed ownership of 21.16 million shares in its 13F filing for the second quarter.

Disclosure:none