BALTIMORE (Stockpickr) -- Investors can glean a wealth of information by looking at what the big money is doing. Big institutional money managers employ teams of Wall Street's smartest investment professionals to monitor every little move stocks make. By watching their publicly-available trades, investors can take advantage of all of that complicated legwork.
But more often than not, individual investors make a huge mistake when they follow hedge funds: They only think about the stocks that the pros are buying. And they ignore the stocks those funds are selling.
When institutional investors unload stocks en masse, they're sending a big message. After all, admitting to their "sell list" is often an act of contrition for hedge funds -- and even the most disciplined investors don't like admitting spotlighting the names they're getting creamed on.
Scouring fund managers' hate list is valuable for two important reasons: it includes names you should sell too, and it includes names that could soon present buying opportunities.
Why would you buy a name that pro investors hate?
It's because, often, when investors get emotionally involved with the names in their portfolios, they do the wrong thing. The big performance gap between hedge funds and the S&P 500 Index in the last year and change is proof of that. So that leaves us free to take a more sober look at the names fund managers are capitulating on.
Those hated names were plentiful last quarter. On a net basis, funds sold down every sector except two.
Luckily for us, we can get a glimpse at exactly which stocks top hedge funds' hate lists by looking at 13F statements. Institutional investors with more than $100 million in assets are required to file a 13F, a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F.
So, without further ado, here's a look at five stocks fund managers hate.
2015 has been a wash so far for shareholders of tech giant Microsoft (MSFT). The $382 billion firm is up all of 1% since the calendar flipped to January, a move that hasn't instilled all that much confidence in investors. That's certainly been true in the institutional world, where Microsoft topped funds' sell lists. All told, big institutions unloaded 51 million shares of MSFT during the quarter, a $2.3 billion sell operation at current price levels.
So should you follow suit and sell your MSFT shares?
First, it's important to remember that Microsoft is a company in transition. The firm's CEO just finished up his 15th month at the helm, not much time to completely refresh Microsoft's business strategy. Still, time is something that Microsoft has plenty of. The firm's core businesses continue to be mission-critical software products such as its Windows operating system and Office productivity suite. That legacy business provides a hefty subsidy toward Microsoft's other ventures. And newer offerings, such as Microsoft's Azure cloud computing solution, are already moving the growth needle.
Financially speaking, Microsoft is in excellent shape. The firm currently carries approximately $67.9 billion in net cash and investments, enough to cover about 18% of Microsoft's current market capitalization. That's a considerable discount on shares, and it gives Microsoft an ex-cash price-to-earnings ratio in the mid-teens. Price momentum is finally starting to come alive in Microsoft again as shares push toward 52-week highs this month.
I think funds got this one wrong by selling here.