This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

10 Top Hedge Fund Buys Show M&A Tilt

Stocks in this article: AAPL C MOT POT GENZ MFE APC AON VRX ACL

NEW YORK ( TheStreet) -- An examination of the stocks that attracted the most hedge fund interest during the quarter showed managers had a taste for mergers and acquisitions.

TheStreet's look at hedge funds' top stock buys, ranked by market value of purchases, suggested that merger-arbitrage deals were the name of the game in the third quarter. A merger arbitrage deal typically involves buying the target's shares and shorting the stock of the acquirer, soon after a deal is announced, in order to take advantage of the premium between the offer price and the prevailing market price. However, in the case of all-cash deals, it could just mean taking a long position in the target, without a corresponding short position in the acquirer.

With deal activity seeing a significant revival in the third quarter, the strategy proved to be popular with hedge funds. Six out of the top ten stock buys during the period were targets of M&A activity.

The merger-arb strategy is not without risks in this bearish environment, where deals are taking longer to execute as acquirers and targets haggle over pricing terms. Last week, BHP Billiton (BHP) withdrew its nearly $40 billion hostile bid for Potash (POT) after it failed to win approval from the Canadian government, putting an end to a three-month long takeover battle.

Stronger fundamentals may be helping to support the stock price of Potash, despite the failure of the deal. But in most cases, the shares of the target will retreat back to pre-offer levels if the deal fails, so the event risk is high.

Investors may want to view the buildup of hedge fund interest in some of the stocks in the list below with caution, as it could represent a speculative bet on a deal taking place, rather than a directional view based on fundamentals.

Tech and healthcare stocks also figured prominently in hedge fund purchases during the quarter. Hedge fund titan David Tepper bought several large-cap tech stocks even as he cut back on financials, according to the latest regulatory filing.

Our shortlist excludes the iShares MSCI Emerging Markets ETF (EEM), which also saw considerable inflows from hedge funds, as money chased higher yields overseas. The SPDR S&P 500 ETF (SPY) was also popular. Big traders tend to use ETFs for hedging strategies, rather than as investment vehicles.

Read on to check out which stocks attracted the most hedge fund interest during the third quarter, ranked in descending order of market value of purchases.

1 of 11

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs