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!

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

Financials

Given the sharp drop in financial stocks last year, it should come as no surprise that hedge fund managers continued to dump bank shares during the fourth quarter. There was nearly uniform disgust with U.S. bank stocks like Bank of America (BAC), Citigroup (C) and JPMorgan Chase (JPM), which had all been big winners for hedge fund managers who bet on their recovery after the financial collapse in late 2008.

Financials as a group were the worst performing sector on the S&P 500 last year, down 18.4%, according to S&P Capital IQ. That performance may have been too much for the likes of John Paulson. His hedge fund finally gave up on several financial holdings, selling completely out of positions in Citigroup, Bank of America, BlackRock (BLK) and others.

Others followed in Paulson's footsteps. Among other interesting sales, Bruce Kovner's Caxton Associates, which owned shares of MF Global prior to the collapse, sold completely out of positions in Wells Fargo (WFC) and Morgan Stanley (MS). Vinik Asset Management cleared its stake of JPMorgan and American Express (AXP).

In crisis there lies opportunity. Many of those funds that sold bank stocks may have missed out on the 10.2% rally in the fourth quarter and the 11.1% rally in the sector this year. Some smart hedge fund managers were buyers of financial stocks last quarter during the carnage, which increased their reported portfolio's sector weighting.

Most notably, Third Point's Daniel Loeb made new buys of Goldman Sachs (GS), Genworth Financial (GNW) and E*Trade Financial (ETFC). While Brevan Howard slashed its position in Berkshire Hathaway (BRK), the hedge fund initiated a stake in Bank of America. Kyle Bass bought up 10 million shares of MGIC Investment (MTG) during the quarters.

These financial buyers may not be completely crazy. If there's one reason for optimism, next year's earnings growth may be it. According to FactSet Research, financials should see earnings growth of 22.3% in 2012, the highest based on analysts' estimates of all sectors. It remains to be seen if the European debt crisis and the exposure to those troubled countries derails those rosy forecasts.

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

8 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!
DOW 17,039.49 +60.36 0.36%
S&P 500 1,992.37 +5.86 0.30%
NASDAQ 4,532.1040 +5.6220 0.12%

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