Apple and 4 Other Stocks Hedge Funds Hated Last Quarter

NEW YORK (TheStreet) -- Which stocks did big hedge fund managers shy away from in the second quarter?

Hedge funds hated information technology stocks, with $3.12 billion in net sells last quarter, following $1.2 billion sector stock sales in the first quarter. Decreases in industrials and financial services stocks were the second and third most sold sectors by the large hedge funds, according to S&P Capital IQ's, a division of McGraw Hill Financial (MHFI), quarterly hedge fund tracker, released last week. 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.

Apple (AAPL) and Micron Technology (MU) were among the most sold stocks were with $1.1 billion and $900 million in net sales, respectively, said S&P Capital IQ.

In contrast, big hedge fund managers poured more than $7 billion into health care stocks in the first quarter. Following health care stocks, hedge fund managers purchased put $2.36 billion investing dollars into consumer discretionary stocks, followed by $856 million in consumer staples.

Check out the five stocks with the biggest sell off by hedge fund managers. TheStreet highlights notable sold 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 hedge funds' biggest buys 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.

MU Chart MU data by YCharts

5. Micron Technology Inc. (MU)
Market Cap: $15.7 billion 
Year-to-date return: -58.5%
Who Sold?: Viking Global Investors

Viking Global sold out of its position of 31.1 million shares worth $830 million.

TheStreet Ratings: Buy, B-
TheStreet Ratings said:
"We rate MICRON TECHNOLOGY INC (MU) a BUY. This is driven by a number of 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 largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, expanding profit margins and notable return on equity. 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:

  • The debt-to-equity ratio is somewhat low, currently at 0.60, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, MU has a quick ratio of 1.62, which demonstrates the ability of the company to cover short-term liquidity needs.
  • 48.66% is the gross profit margin for MICRON TECHNOLOGY INC which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, MU's net profit margin of 12.74% significantly trails the industry average.
  • MICRON TECHNOLOGY INC's earnings per share declined by 38.2% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MICRON TECHNOLOGY INC increased its bottom line by earning $2.55 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($2.68 versus $2.55).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.6%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

 

 

AAPL Chart AAPL data by YCharts

4. Apple (AAPL)
Market Cap: $603 billion
Year-to-date return: -4.2%
Who Sold?: Lone Pine Capital

Lone Pine sold out of its position of 6.8 million shares worth $874 million.

TheStreet Ratings: Buy, B+
TheStreet Ratings said:
"We rate APPLE INC (AAPL) 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 solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, robust revenue growth and notable return on equity. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

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

  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. 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.
  • APPLE INC has improved earnings per share by 44.5% 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, APPLE INC increased its bottom line by earning $6.43 versus $5.66 in the prior year. This year, the market expects an improvement in earnings ($9.13 versus $6.43).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Computers & Peripherals industry average. The net income increased by 37.8% when compared to the same quarter one year prior, rising from $7,748.00 million to $10,677.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 36.8%. Since the same quarter one year prior, revenues rose by 32.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Computers & Peripherals industry and the overall market, APPLE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.

 

 

MDLZ Chart MDLZ data by YCharts

3. Mondelez International (MDLZ)
Market Cap: $69.6 billion
Year-to-date return: 18.9%
Who Sold?: Viking Global Investors

Viking sold its entire position in Mondelez of 23.9 million shares, worth $938 million, as of Friday.

TheStreet Ratings: Buy, B+
TheStreet Ratings said:
"We rate MONDELEZ INTERNATIONAL INC (MDLZ) a BUY. This is driven by a number of 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 expanding profit margins, solid stock price performance and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

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

  • 42.49% is the gross profit margin for MONDELEZ INTERNATIONAL INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 5.29% is above that of the industry average.
  • Compared to its closing price of one year ago, MDLZ's share price has jumped by 28.51%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.5%. Since the same quarter one year prior, revenues slightly dropped by 9.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • MONDELEZ INTERNATIONAL INC's earnings per share declined by 30.6% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, MONDELEZ INTERNATIONAL INC reported lower earnings of $1.27 versus $1.28 in the prior year. This year, the market expects an improvement in earnings ($1.78 versus $1.27).
  • 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. When compared to other companies in the Food Products industry and the overall market, MONDELEZ INTERNATIONAL INC's return on equity is below that of both the industry average and the S&P 500.

 

VRX Chart VRX data by YCharts

2. Valeant Pharmaceuticals (VRX)
Market Cap: $75.7 billion

Year-to-date return: 55.2%
Who Sold?: ValueAct Capital

Valeant was the second biggest sell for hedge funds. ValueAct decreased its existing position by 4.38 million shares, leaving it with 4.4% stake worth $3.35 million.

TheStreet Ratings: Buy, B-
TheStreet Ratings said:
"We rate VALEANT PHARMACEUTICALS INTL (VRX) a BUY. This is driven by several positive factors, 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, good cash flow from operations, expanding profit margins, solid stock price performance and notable return on equity. 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:

  • The revenue growth greatly exceeded the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 33.9%. 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.
  • Net operating cash flow has slightly increased to $410.50 million or 9.17% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -13.48%.
  • The gross profit margin for VALEANT PHARMACEUTICALS INTL is currently very high, coming in at 78.66%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -1.93% is in-line with the industry average.
  • Compared to its closing price of one year ago, VRX's share price has jumped by 125.49%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • VALEANT PHARMACEUTICALS INTL has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. 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 ($11.64 versus $2.67).

 

 

BIDU Chart BIDU data by YCharts

1. Baidu.com Inc. (BIDU)
Market Cap: $53.7 billion

Year-to-date return: -33%
Who Sold?: Lone Pine Capital

Lone Pine Capital was the largest seller, selling out of its stake of 5.28 million shares. The stake would have been worth TK as of Friday's close.

TheStreet Ratings: Buy, B
TheStreet Ratings said:
"We rate BAIDU INC (BIDU) a BUY. This is driven by a number of 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 robust revenue growth, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."

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

  • The revenue growth greatly exceeded the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 38.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • BAIDU INC reported flat earnings per share in the most recent quarter. 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, BAIDU INC increased its bottom line by earning $6.01 versus $4.96 in the prior year. This year, the market expects an improvement in earnings ($32.80 versus $6.01).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Internet Software & Services industry average. The net income increased by 3.1% when compared to the same quarter one year prior, going from $572.56 million to $590.58 million.
  • Despite currently having a low debt-to-equity ratio of 0.60, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.33 is very high and demonstrates very strong liquidity.
  • The gross profit margin for BAIDU INC is rather high; currently it is at 64.48%. Regardless of BIDU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 22.09% trails the industry average.

 

 

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