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40 Hedge Funds' Best Stocks Show the Way for 2012 (Update 1)


The energy sector saw plenty of hedge fund activity and it's no wonder why. Energy stocks in the S&P 500 jumped 17.6% in the fourth quarter, according to S&P Capital IQ, the best performance of any of the S&P 500's 10 sectors during the three-month period. This performance came as crude oil prices surged from about $76 per barrel in October to more than $100 by late December. In 2012, these bets have paid off with a 5% return for the energy sector, although that trails six other sectors of the S&P 500.

This upward move in crude prices and energy stocks has likely benefitted a handful of hedge fund managers, assuming they continue to hold shares of oil stocks. Hedge funds like Brevan Howard, Bridgewater Associates, Centaurus Capital, Moore Capital and Tudor Investment, among many others, all upped their exposure to energy stocks during the fourth quarter.

It hasn't all been about the recent jump in the price of oil, though. In the fourth quarter, the energy sector as a whole saw earnings growth of 6.5%, third-best of any other sector during the quarter, according to FactSet Research analyst John Butters. On the downside, earnings for energy companies in the S&P 500 should climb only 1.1% in 2012 based on analysts' estimates.

El Paso (EP) found many buyers after it was announced that Kinder Morgan (KMI) would buy the company for $21 billion. Tom Steyer's Farallon Capital, Carl Icahn's Icahn Associates, Louis Bacon's Moore Capital, and Leon Cooperman's Omega Advisors all initiated stakes or increased existing positions in El Paso during the quarter.

Meanwhile, Barry Rosenstein's Jana Partners sold 12 million shares of El Paso but bought up stock in other energy names like Marathon Petroleum (MPC) and Anadarko (APC). Elsewhere, Centaurus Capital made a $30 million bet on Complete Production Solutions (CPX).

Among other favored picks, U.K. hedge fund Brevan Howard initiated new stakes in Valero (VLO) and Petrobras (PZE). Ray Dalio's Bridgewater Associates opened positions in Peabody Energy (BTU) and Imperial Oil (IMO), among several others, while increasing stakes in Tesoro (TSO) and HollyFrontier (HFC).

Seth Klarman's Baupost Group, which takes a value approach to investing, trimmed its stake in BP (BP) and completely sold out of a position in BreitBurn Energy (BBEP) during the fourth quarter. John Paulson, while a buyer of El Paso, sold shares of Anadarko, Transocean (RIG) and Talisman Energy (TLM).

Steven Cohen was another seller of energy names, dumping more than a million shares each of Baker Hughes (BHI), Marathon Petroleum, HollyFrontier, Hess (HES) and others.

>>To see these energy stocks in action, visit the Energy Stocks Bought and Sold by Hedge Funds portfolio on Stockpickr.
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