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


Some of the biggest hedge fund managers were down on the materials sector during the fourth quarter, although one specific stock in the sector was a buy for a few fund managers, which increased their exposure to the group.

The materials sector was the second worst of all S&P 500 sectors last year, falling 11.6%, according to S&P Capital IQ. Only financials performed worse as a group in 2011. That move lower came as the materials group saw the second largest decrease in earnings growth during the fourth quarter out of all sectors, with profits down 13.8% from the prior year. Looking ahead, though, earnings are expected to grow 4.8% in 2012, down from 29.6% earnings growth in 2011, according to FactSet Research.

With slowing growth on the horizon, hedge funds were jumping out of some positions in materials stock, reducing their reported portfolio's overall exposure to the sector. David Tepper's Appaloosa Management was one such firm, dumping shares of International Paper (IP), CF Industries (CF) and Mosaic (MOS). John Thaler's JAT Capital liquidated its 5-million-share stake in Molycorp (MCP) and took new positions in Owens-Illinois (OI) and Cemex (CX).

On the other hand, hedge funds like Brevan Howard and Highbridge Capital saw their portfolios increase their stakes in the materials sector. Jana Partners bought shares of Cytec Industries (CYT) and Rock-Tenn (RKT). Highbridge picked up stocks like LyondellBasell (LYB), CF Industries, Sealed Air (SEE) and Huntsman (HUN), among others.

John Paulson, who presided over an epic collapse in his fund last year, bought other materials companies as he increased his positions in gold-related companies like Barrick Gold (ABX), Iamgold (IAM), Rangold Resources (GOLD) and Agnico-Eagle Mines (AEM).

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