5 Stocks the Biggest Hedge Funds Bought Last Quarter

NEW YORK (TheStreet) -- Which stocks did big hedge fund managers scoop up in the first quarter?

Health care stocks, apparently. In the first quarter, hedge funds poured $4.79 billion into the sector, according to S&P Capital IQ's, a division of McGraw Hill Financial (MHFI), quarterly hedge fund tracker. The report analyzes Securities and Exchange Commission 13-F filings by the 10 largest hedge funds by asset size to spotlight big buying and selling trends.

Following health care stocks, hedge fund managers put $1.47 billion investing dollars into the industrial sector as well as $1.13 billion into energy stocks, despite the oil price slump. On the flip side, hedge fund managers sold out of information technology stocks, with $1.19 billion in net sells last quarter followed by consumer staples companies with $299 million in net sells, S&P Capital IQ found.

Check out the five stocks with the biggest investment by hedge fund managers. TheStreet highlights notable new or added positions on each of the five stocks, pairing the companies with ratings from TheStreet Ratings. And when you're done be sure to check out which stocks hedge funds hated last quarter.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Note: Year-to-date returns are based on May 20, 2015 closing prices.

MCD Chart MCD data by YCharts

5. McDonald's (MCD)
Market Cap: $96 billion
Year-to-date return: 6.8%
Who Bought?: Highfields Capital Management

Highfields Capital Management purchased 9 million shares of the fast-food giant. Those shares are worth $982 million.

TheStreet Ratings: Buy, B
TheStreet Ratings said:
"We rate MCDONALD'S CORP (MCD) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity and expanding profit margins. We feel its strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, MCDONALD'S CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • 43.42% is the gross profit margin for MCDONALD'S CORP which we consider to be strong. Regardless of MCD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MCD's net profit margin of 13.61% compares favorably to the industry average.
  • MCD, with its decline in revenue, slightly underperformed the industry average of 7.4%. Since the same quarter one year prior, revenues fell by 11.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The share price of MCDONALD'S CORP has not done very well: it is down 5.17% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • Net operating cash flow has decreased to $1,699.50 million or 10.89% when compared to the same quarter last year. Despite a decrease in cash flow of 10.89%, MCDONALD'S CORP is in line with the industry average cash flow growth rate of -16.93%.

 

JD Chart JD data by YCharts

4. JD.com (JD)
Market Cap: $46.1 billion
Year-to-date return: 45.8%
Who Bought?:Tiger Global Management, Long Pine Capital

Tiger Global Management increased its position by 15.8 million shares. Tiger's stake -- 20.9 million shares, 1.9% of the company -- is worth $931.6 million. Lone Pine Capital added 29.7 million shares. The stake -- 3.5% of the company -- is worth $1.3 billion.

TheStreet Ratings: no ratings available

AIG Chart AIG data by YCharts

3. American International Group (AIG)
Market Cap: $80 billion
Year-to-date return: 7%
Who's Buying?: Paulson & Co., Viking Global Investors

Both John Paulson of Paulson & Co. and Viking Global took new positions in AIG last quarter. Paulson purchased 14.6 million shares, worth $875.6 million, currently. Viking Global bought 8.4 million shares, valued currently at $506 million.

TheStreet Ratings: Buy, B
TheStreet Ratings said:
"We rate AMERICAN INTERNATIONAL GROUP (AIG) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, increase in net income and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Insurance industry. The net income increased by 53.4% when compared to the same quarter one year prior, rising from $1,609.00 million to $2,468.00 million.
  • Although AIG's debt-to-equity ratio of 0.30 is very low, it is currently higher than that of the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.8%. Since the same quarter one year prior, revenues slightly dropped by 2.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • AMERICAN INTERNATIONAL GROUP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AMERICAN INTERNATIONAL GROUP reported lower earnings of $5.21 versus $6.07 in the prior year. For the next year, the market is expecting a contraction of 5.0% in earnings ($4.95 versus $5.21).

 

ACT Chart ACT data by YCharts

2. Actavis plc (ACT)
Market Cap: $116.9 billion
Year-to-date return: 15.6%
Who's Buying?: Paulson & Co., Viking Global Investors

Paulson & Co. added 4 million shares to his stake, now tallying 5.6 million shares. Paulson's stake is currently worth $1.68 billion. Viking Global Investors added 1.5 million shares to its position. The stake -- 6.1 million shares, or 1.56% of all shares outstanding -- is worth $1.82 billion.

TheStreet Ratings: Buy, B-
TheStreet Ratings said:
"We rate ACTAVIS PLC (ACT) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ACT's very impressive revenue growth greatly exceeded the industry average of 8.0%. Since the same quarter one year prior, revenues leaped by 59.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, ACT's share price has jumped by 44.34%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ACT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Net operating cash flow has increased to $525.00 million or 30.37% when compared to the same quarter last year. In addition, ACTAVIS PLC has also vastly surpassed the industry average cash flow growth rate of -21.42%.
  • The gross profit margin for ACTAVIS PLC is rather high; currently it is at 68.80%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -12.09% is in-line with the industry average.
  • The debt-to-equity ratio is somewhat low, currently at 0.62, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.80 is somewhat weak and could be cause for future problems.

 

VRX Chart VRX data by YCharts

1. Valeant Pharmaceuticals International (VRX)
Market Cap: $78.3 billion
Year-to-date return: 59.6%
Who's Buying?: Pershing Square Capital Management, Paulson & Co.

Valeant Pharmaceuticals was the biggest buy for the hedge funds with a net $3.7 billion in share purchases. The company, ironically, was also the top stock sold by big hedge fund managers in the first quarter. Bill Ackman's Pershing Square Capital Management was the front runner in buying the stock. He took a new position and bought 19.5 million shares last quarter. His stake, roughly 5.7% of Vertex's shares outstanding is worth $4.45 billion currently. Paulson & Co. added 1.5 million shares last quarter. The stake is worth $468 million currently.

TheStreet Ratings: Buy, B
TheStreet Ratings said:
"We rate VALEANT PHARMACEUTICALS INTL (VRX) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. We feel its strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 8.0%. Since the same quarter one year prior, revenues rose by 16.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • VALEANT PHARMACEUTICALS INTL reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, VALEANT PHARMACEUTICALS INTL turned its bottom line around by earning $2.67 versus -$2.62 in the prior year. This year, the market expects an improvement in earnings ($11.10 versus $2.67).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 426.1% when compared to the same quarter one year prior, rising from -$22.60 million to $73.70 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, VALEANT PHARMACEUTICALS INTL's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has slightly increased to $491.10 million or 1.40% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -21.42%.

 

 

More from Investing

When Is It 'Worth It' to Work With a Financial Advisor?

When Is It 'Worth It' to Work With a Financial Advisor?

Amazon, Microsoft and Google Face Backlash over ICE, Military Deals

Amazon, Microsoft and Google Face Backlash over ICE, Military Deals

3 Great Stock Market Sectors Millennials Should Invest In

3 Great Stock Market Sectors Millennials Should Invest In

Why Millennials Are Ditching Stocks for ETFs

Why Millennials Are Ditching Stocks for ETFs

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says