The first quarter of 2015 is now officially in the books, and April Fools is upon us (there will be no trickery on our pages today, we promise). Given that, it’s time to look back at the past quarter and in particular, at the biggest winners and losers in terms of stock performance during the quarter. In this article we’ll look at the performance of the three biggest gainers in the large cap space (those companies with market caps of between $10 billion and $100 billion), which were Twitter Inc (TWTR), Kraft Foods Group Inc (KRFT), and Valeant Pharmaceuticals Intl Inc (VRX). Unsurprisingly, all three made big gains due to major events during the quarter, one on the strength of a major acquisition, the other on a promising earnings report, and the last as a major acquisition itself.
Despite the huge gains (as you’ll see) of these large cap stocks, they are generally the exception rather than the rule, and we don’t recommend that investors run out and pour all of their money into the large cap space. That’s because these stocks are well-known, and in most cases already fairly-priced, leaving little room for upward momentum short of major events like mergers & acquisitions, which played a role in the appreciation of the stocks of all three of the biggest gainers among large caps. Our research has shown that the top 50 stock picks of hedge funds (mostly comprised of large- and mega-cap stocks) underperformed the market by seven basis points per month between 1999 and 2012. However, the top 15 small cap stocks of those same funds greatly outperformed the market during that same period, and since this strategy went live in August 2012, have continued to do so, producing returns of 132% through March 11, while theS&P 500 ETF (SPY) returned 52.6% (see the details).
Let’s check out the list of the top three large cap gainers now, beginning with Twitter Inc (NYSE:TWTR), which rose by 39.62% during the quarter. Twitter likely would not have been predicted by many people as the top performing large cap stock during the first quarter, after a rough 2014 that saw shares crumble by nearly 50%. Investors have been wary of the social media giant’s slowing user growth and inability to adequately monetize its platform. At the end of 2014, the aggregate value of the stakes held by hedge funds we track was cut in half to $1.01 billion from $2.03 billion at the end of the third quarter, while only 42 funds maintained long positions in the company, down from 59. John Thaler’s JAT Capital Management is the largest of these investors, with ownership of 7.26 million shares.
However the company’s most recent earnings report in early February has defied analysts and hedge fund managers, as Twitter Inc (NYSE:TWTR) posted a mammoth increase in quarterly revenue for the fourth quarter of $479 million, a 97% gain over the year-ago quarter. Ad revenue per 1,000 timeline views also leapt by 60% year-over-year to $2.37. However, user growth did slow even further, with just a 1.4% gain over the previous quarter, to 288 million active users. Twitter Inc (NYSE:TWTR) did indicate that growth should return to its early 2014 levels of double digit growth in the near future.
More recently, Twitter Inc (NYSE:TWTR)’s Periscope live-streaming app was released to rave reviews, while support for its competitor Meerkat was simultaneously removed from Twitter’s platform. Periscope, for which Twitter reportedly paid more than $50 million back in February when the app was still in beta testing, has soared in the top 30 most downloaded apps on the US iPhone charts. The potential blockbuster application could ignite interest in Twitter Inc (NYSE:TWTR) that’s why the news sent shares over the $50 mark for the first time since October. With a blockbuster app that could solve its user growth problems, and help revenue that has been already rapidly increasing, Twitter now looks like a vastly improved investment option compared to just three months ago.
The second biggest gainer was Kraft Foods Group Inc (NASDAQ:KRFT) jumping by 39.04%. Kraft Foods Group Inc (NASDAQ:KRFT)’s stock grew entirely due to its purchase by Brazilian private equity firm 3G Capital on March 25; in facts shares were down slightly year-to-date until the announcement. The iconic American food company will now be merged with the privately owned Heinz, which is co-owned by 3G and Warren Buffett, who was also involved in the Kraft deal. Buffett and 3G agreed to split the costs of a $10 billion special dividend payment to the current Kraft shareholders.
A total of 36 of the funds that we track had a position in Kraft Foods Group Inc (NASDAQ:KRFT) at the end of 2014, down slightly from 37 a quarter earlier, though the aggregate value of their investments grew to $744 million from $644 million. Phill Gross and Robert Atchinson’s Adage Capital Management is the largest shareholder among these funds, owning 2.57 million shares, followed by billionaires Ken Griffin, Israel Englander, and D.E Shaw, among others.
Lastly is Valeant Pharmaceuticals Intl Inc (NYSE:VRX), which advanced by 38.79% during the first quarter, largely on the strength of its $11.1 billion purchase of Salix Pharmaceuticals in February, which has been recently completed. The successful purchase for the Montreal, Canada-based pharmaceutical company followed a failed attempt last year to purchase botox maker Allergan, which was sold to Actavis plc (NYSE:ACT) instead. Nor was the Salix purchase without its own dramatic battle, as Endo International plc (NASDAQ:ENDP) also made a bid, which forced Valeant Pharmaceuticals Intl Inc (NYSE:VRX) to increase its offer to $173 per share.
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) was one of the most popular stocks among the hedge funds we track at the end of 2014, with 102 investors reporting long positions, up from 90 a quarter ago. Hedge funds also had a hefty $14.08 billion aggregate investment in the stock, up from $13.29 billion the previous quarter, which placed Valeant on the ninth spot among all companies in terms of invested capital value from the funds that we track. Jeffrey Ubben’s ValueAct Capital is the largest shareholder as of the end of 2014, owning 19.38 million shares. However, activist investor Bill Ackman has recently opened a slightly larger position that contains 19.47 million shares, representing 5.7% of the company’s stock.
Disclosure: None
