Top Stocks With Most Hedge-Fund Action

BOSTON (TheStreet) -- Hedge funds took a surprisingly contrarian tack in the second quarter, bulking up on consumer-discretionary stocks, despite slowing global economies, high unemployment and signs that Americans are getting stingier.

The consumer-discretionary stocks sector grew by 1.1 percentage points to a 16.1% weighting of the $1.2 trillion in assets held by 795 hedge funds tracked by Bloomberg, double the growth of any other industry. Consumer-discretionary companies' products range from alcohol, personal-care products and luxury goods to services ranging from restaurants to travel and entertainment.

Among the stocks in that group seeing big buying were Internet retailer Amazon.com ( AMZN), Rupert Murdoch's media conglomerate News Corp. ( NWSA), online-travel Web site Expedia ( EXPE), Arcos Dorados Holdings ( ARCO), which operates and franchises McDonald's restaurants in South America, and Pandora Media ( P), a provider of Internet radio services.

Other companies' shares bought up include: carmaker General Motors ( GM), 17 million in share buys; Netflix ( NFLX), which rents DVDs by mail and is building a video-streaming service, 2 million shares; retailer Bed, Bath & Beyond ( BBBY), 6 million shares; and the department-store chain Macy's ( M), 8.8 million in new-share buys.

Financials made up the largest sector weighting for hedge funds, at 17.7%, down 0.6 percentage point in the quarter, followed by information technology, at 17.5%, up the same amount.

Bank stocks that suffered big selling were: JPMorgan Chase ( JPM), 17.6 million shares, Bank of America ( BAC), 68 million shares, and Wells Fargo ( WFC), 17 million shares.

But Citigroup ( C) experienced net buying of 6.4 million shares. The bank is the third-largest holding of the aggregated hedge funds, with a market value of $8.8 billion at June 30.

ConocoPhillips ( COP), the oil and natural gas industry giant, had the biggest decline in dollar terms of all hedge-fund holdings, as 14.7 million shares were sold off and its share price fell in the period. Hedge funds now hold $2.7 billion of its shares, down by $1.3 billion.

Energy's weighting among hedge funds shrank 0.5 percentage point, perhaps on profit-taking as oil prices and industry profits boomed in the second quarter. For example, Exxon Mobil ( XOM) reported that its second-quarter profit jumped 41% on rising production, high oil prices and improved refining profit margins. But the company's shares have also declined over the past few months.

IPhone and iPad maker Apple ( AAPL) remained the largest hedge-fund holding, at $13.4 billion, followed by the international chemical-industry giant LyondellBasell ( LYB), which had a market value of $9 billion.

In the technology sector, which grew by a 0.6 percentage point weighting in the quarter, Qualcomm ( QCOM) was far and away the big winner, seeing 7.4 million in share buying.

Here are six stocks that had the most hedge fund action in the second quarter:

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Amazon.com ( AMZN), the highest-grossing online retailer in the world, saw 2 million in share buying, giving it a $3.6 billion value to hedge funds.

The company got good news two weeks ago when it was reported that U.S. e-commerce sales rose 14% to $37.5 billion in the second quarter, according to data issued collected by comScore, a tracker of digital commerce. That marks the seventh straight quarter of year-over-year growth in online spending for the industry.


Qualcomm ( QCOM) had 7.4 million in shares bought in the quarter, giving it an aggregated market value of $5.2 billion among hedge funds. Its total market value is $86 billion. The company owns the rights to a communications standard used in wireless networks and it has leveraged that into the semiconductor market, where the firm is a key supplier of chips to wireless handset makers and also generates royalty revenue by licensing its intellectual property.

Late in July, Qualcomm reported a 35% increase in its third- quarter earnings and boosted its guidance for the year due to strong global demand for smartphones and a recent acquisition.

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Arcos Dorados Holdings ( ARCO), which operates McDonald's restaurants throughout Latin and South America, is the world's largest McDonald's franchisee. After its April IPO, hedge-fund investors gobbled up 47 million shares, giving it a net value as owned by hedge funds of $993 million. The company now has a market value of $5.2 billion.


Macy's ( M), the department-store chain, saw investors gobble up 8.8 million shares, resulting in aggregate hedge-fund holdings of $2.2 billion.

The company operates around 800 Macy's stores and 40 Bloomingdale's stores nationwide, selling apparel, accessories, cosmetics, home furnishings and other consumer goods. In its second quarter, earnings rose 64%, propelled by strong sales. For the quarter ended July 30, Macy's reported a profit of $241 million, or 55 cents per share, and raised its earnings outlook for the rest of the year.

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Pandora Media ( P), a provider of Internet radio services, is a new addition to hedge-fund holdings as they bought 42.5 million shares, worth $803 million.

Pandora has a market value of $2.2 billion. The Oakland, Calif.-based company, which launched its IPO in June, is expected to continue to lose money over the next couple of years as it works to build up its business and revenue base, analysts say.


Expedia ( EXPE), the online-travel Web site, saw 23 million in share-buying, and hedge funds now own $1.4 billion of its shares. The company is the world's largest online-travel agent, providing booking services for hotel rooms, airline tickets, rental cars, cruises, package tours and other travel products. It operates primarily under its Expedia.com brand, but also owns Hotels.com, Hotwire.com and TripAdvisor.com, and holds majority stakes in China-based eLong.com.

Two weeks ago, Expedia reported that second-quarter earnings rose a better-than-expected 23% due to a jump in international-hotel bookings and growing advertising revenue.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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