I'm a strong believer in following the big money when it comes
to stock investing. Most of the time, when I need aninvestment
idea, I look for the stocks hedge funds are buying. The good thing
is that the reversal of this technique can alsoyield powerful
insight into what the big money is doing. In other words, what
stocks are hedge funds selling?
Fortunately for regular investors like you and me, any fund
managing more than $100 million is required to file form13F with
theSecurities and Exchange Commission (SEC) . This quarterly form
reveals what stocks funds are buying and, if you compare filings
quarter to quarter, then you can also see what they are
Hedge-fund managers would only be selling stocks they
believewill underperform in the future. The investment adage of
buying weakness and selling strength is apparent when it comes to
stocks hedge funds are trading. It's generally not stocks that have
been beaten down on the list, but rather companies that have
But sometimes even the big money can make mistakes. In fact,
after some quick research on the latest 13F filings, I just
found two surprising stocks I think hedge funds are wrongly
Here they are...
1. Apple (Nasdaq: APPL)
You don't have to be an investment wizard to know that Apple is a
company with a stellar management and stunning products. This
giant of the tech world hit a peak price on Sept. 19 closing at
about $702. Interestingly, hedge funds started dumping the
apparently strong stock around the same time it hit its peak value.
Large and well-known funds including Maverick Capital, Tiger
Global, Greenlight Capital, SAC Capital and Eton Park Capital all
slashed their position in Apple during the third quarter.
Although the company still has massiveinstitutional ownership ,
the selling has been very prophetic. Apple has fallen 23% since its
It's important to note that despite this selling spree, Apple
remains one of the largest holdings for Maverick, Tiger Global and
Greenlight. But even after selling theshares , Apple's downward
slide resulted in negative monthly performance for these funds.
Remember, Apple was up more than 70% since the start of 2012 to its
And not only do I think hedge funds made a mistake selling this
stock, but their selling has opened up a great buying
Technically, Apple's stock plunged through the 50- and 200-day
simplemoving average , finally finding support in the $500 range.
Apple's fundamental metrics paint a compellinglybullish picture for
the shares at the current level.
The company boasts $117 billion in cash and a forward
price-to-earnings (P/E ) ratio of 9.7, making it a clear
fundamental buy. However, I would wait until the 200-day simple
moving average at $592 is pierced on the upside, as a daily close,
prior to buying into the company. Yes, I will likely miss a few
points on the upside, but the technical confirmation of the uptrend
should lessen the risk factor.
2. Delphi Automotive (
Spun off of
General Motors (
, Delphi is one of the world's largest suppliers of parts to
carmakers. The company has struggled, but reorganization in 2009
and a publicoffering last year have turned its fortunes. But the
hedge funds seemingly believe the slowingeconomy and European
crisis will damage the company.
Hedge funds have been dumping this auto-parts maker, but the
stock keeps going higher. In the second quarter, funds dumped
nearly 60 million shares, slashing their holdings by more than $3
billion. Just recently,hedge fund wizard John Paulson slashed his
Delphi holdings by 7 million shares.
It looks like the hedge funds have been wrong, so far. Massive
economic stimulus measures from the central banks worldwide should
supercharge the global economy during the next year or so. I think
these measures will be a huge positive for Delphi.
The stock is up 47% this year and the company recently reported
third-quarterearnings of 84 cents a share, up from 79 cents a share
a year ago. Year-over-year revenue, however, was down 6%, as a
result of strategic readjustments triggered by the European crisis
andcurrency exchange rates.
Technically, shares have been uptrending since June with a base
being built just below the $32 area. A double top at the $34 level
creates significant technical resistance. Just like Apple, I prefer
to wait for technical confirmation of my bullishness prior to
entering the stock. Therefore, I would be a buyer on any daily
close above the resistance at $34.
Risks to Consider:
Even though there is strong evidence that hedge funds sold
these two stocks too early, the verdict is still out on the
long-term performance. Always be sure to use stops and position
size based on your risk tolerance when investing.
Action To Take -->
As I said before, hedge funds aren't always right. I think
the massive selling by hedge funds created a great buying
opportunity in Apple. The selling appears to have been absorbed in
Delphi without much ill effect on the stock's price. Having said
that, I prefer to wait for technical confirmation before entering
either stock long. My forecast for Apple is $1,000 per share within
18 months and $40 for Delphi should the entries trigger.
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