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Hedge Funds Hate These 7 Stocks -- but Should You? - views
BALTIMORE (Stockpickr) -- It's 13F season -- that magical time each quarter when we get to sneak a peek into the portfolios of Wall Street's most well-known money managers. But while most investors concern themselves with the stocks that the pros love, they're ignoring a group that's just as important: the stocks they hate.
After all, if you'd consider adding a stock because institutions are buying with both hands, then the names portfolio managers are cutting loose are throwing up some serious red flags. To figure out which names hedge funds, pensions, mutual funds and other groups of professional investors are shedding, we're taking a look at the aggregated 13F filings that 3,325 firms just submitted for the second quarter of 2013.
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. And I'll give you a hint: Funds' sell list is skewed against tech, pharma and gold names this quarter.
Without further ado, here's a look at seven stocks fund managers hate.
Shares Sold: 9.15 million
Decrease in Market Value: $15.7 billion
Big Blue isn't making any friends on Wall Street right now -- and that shouldn't come as a huge surprise considering the 3.6% drop that shares have posted since that start of 2013. IBM (IBM) is underperforming the S&P 500 by a hefty 20% right now. For portfolio managers fixated on beating their benchmarks, that performance is unforgivable.
IBM builds mainframes, designs software and provides IT services to corporate clients across the world. It's struggled to gain traction along with many blue-chip tech names this year. The firm's hefty shareholder yield should at least come as some consolation for investors who are still holding on.
SPDR Gold Trust
Shares Sold: 40.44 million
Decrease in Market Value: $10.24 billion
Gold has been losing its luster in 2013. Heh, maybe that's an understatement. Since the start of the year, the SPDR Gold Trust (GLD), the easiest way to get instant exposure to the yellow metal, has dropped like a rock. The $40 billion ETF is down more than 18% since the calendar flipped over to January. So it's another example of funds' chasing performance (or, rather, running from underperformance).
That's not to say that GLD hasn't done exactly what it was supposed to do -- it has. It's tracked the value of spot gold all the way down. And the funds have clearly had enough.
Shares Sold: 12.02 million
Decrease in Market Value: $8.32 billion
Qualcomm (QCOM) is another tech sector name that's getting unloaded by big institutions after an uninspiring first half of the year. Qualcomm is a wireless chipmaker as well as a major tech IP licensor, producing everything from processors to wireless communications cards. The firm's patents effectively mean that every handset maker in the world has to pay Qualcomm royalties if they want their phones to operate on 3G and 4G networks. And while that's a lucrative business right now, the firm's growth hasn't kept up with Wall Street's expectations.
Despite the selling, firms still hold a $78 billion stake in the stock. So while they hate it this quarter, it's still a massive position on institutional portfolio statements.
Shares Sold: 138.9 million
Decrease in Market Value: $8.07 billion
Pfizer's (PFE) positioning as one of the biggest drug makers in the world didn't spare it from institutional selling in the most recent quarter. All told, institutions sold 138.9 million shares. Like Qualcomm, that's only a dent in a very large original aggregate position, but it's still telling. It means that fund managers see a better use of capital on the market than shares of PFE.
Part of the Pfizer sale likely has to do with the anxiety over pharmaceutical firms' patent cliffs -- and the loss of Lipitor's patent protection for Pfizer specifically. While high dividend payouts were a saving grace until now, the possibility of upwardly mobile interest rates makes high yields look relatively less attractive.
Shares Sold: 7.31 million
Decrease in Market Value: $7.73 billion
Allergan (AGN) is another pharma name that saw shares get sold off en masse in the last quarter. Despite its $28 billion market cap, this isn't your typical big pharma name: Allergan pays out a tiny 0.22% dividend yield, so antsy income investors aren't the reason for selling in shares. Instead, the firm's price action has a lot more to do with its ability to find new uses for its blockbuster Botox drug.
Institutions' stake in AGN could be called a conviction sell; firms unloaded almost 30% of their total combined position in Allergan this past quarter.
Shares Sold: 681,810
Decrease in Market Value: $7.3 billion
If gold prices have gotten shellacked in 2013, Barrick Gold's (ABX) price action has been a whole different thing: year-to-date, shares of Barrick have almost gotten halved. And that's spurred selling from the institutions that own three quarters of the firm's outstanding shares. Ironically, declining prices contributed far more to the decreased market value of funds' ABX shares than selling did. But funds were still definitively net sellers of the $20 billion gold miner.
Barrick's positioning isn't unique among gold miners the firm's huge scale just makes it a more conspicuous example. In a big way, miners are a leveraged play on the precious metal itself, and portfolio managers don't want exposure to either right now.
Shares Sold: 77.08 million
Decrease in Market Value: $6.76 billion
Last up is enterprise software maker Oracle (ORCL). Oracle sells mission-critical software packages to firms that need database tools for everything from customer resource management to supply chain analysis. Because Oracle's software is integrated so tightly into firms' operations, customers have extremely high switching costs and competitors have big barriers to entry. But that positioning didn't spare the firm from selling.
On the valuation side, Oracle looks like a bargain with a hefty net cash position and substantial recurring free cash flows. But the market isn't interested in Oracle's valuation argument. Until it is, investors should steer clear.
To see these stocks in action, check out the at Stocks Fund Managers Hate portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji
Follow Jonas on Twitter @JonasElmerraji