Top 50 Hedge Fund Stocks: Only 13 Are Buys

by Nancy Zambell | May 31, 2012 7:00 am

Last week, I discussed the dismal returns that hedge funds have been giving their investors[1] since they last beat the S&P 500 Index back in 2008. And I noted that the returns have suffered primarily because of high management fees and lots of turnover.

I want to share with you another reason why hedge fund returns may be lagging: Those munificently paid hedge fund managers are picking the wrong stocks! Zambell Dow 300x179 Top 50 Hedge Fund Stocks: Only 13 Are Buys
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You can see that the market, while still volatile, has been on the rise for the past six months. Yet hedge fund returns aren’t matching that performance. That may be because hedge funds’ most popular holdings are stocks that, on a technical basis, don’t look attractive at all.

Goldman Sachs (NYSE:GS[2]) just revealed the top 50 holdings of hedge funds. I decided to put each one through my technical-analysis screen — and I have to say that even I was amazed at the results!

Of those top 50 stocks, only 13 were rated a Buy or a Strong Buy by my indicators. Six were Holds, and the rest rated a Sell or a Strong Sell. Here are the 13 that look best:

company ticker
symbol
price ($) technical
rating
consensus analyst
recommendation
(1 is the highest)
Apple AAPL 572.27 Buy 1.7
Delphi Automotive DLPH 29.84 Buy 1.6
Tyco TYC 54.60 Buy 2.0
Visa V 120.28 Buy 1.9
Yahoo! YHOO 15.47 Buy 2.6
WellPoint WLP 68.84 Buy 2.0
Charter Communications CHTR 64.63 Buy 2.0
eBay EBAY 41.49 Strong Buy 2.0
Equinix EQIX 167.32 Strong Buy 1.9
Dollar Thrifty DTG 81.89 Strong Buy 2.6
MasterCard MA 416.05 Buy 1.9
News Corp. NWSA 19.69 Buy 2.2
Williams Companies WMB 31.39 Buy 1.9

Now, I’m not suggesting that you run out and buy these stocks. And please note that technical ratings are pretty short-term in nature. But if you want to start building your own hedge fund, these might be a few companies to consider.

Next I’ll tell you about the 14 of top 50 hedge fund holdings that look more like sells[3] than buys to me!

Endnotes:
  1. the dismal returns that hedge funds have been giving their investors: http://investorplace.com/2012/05/do-you-have-hedge-fund-envy-dont/
  2. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  3. the 14 of top 50 hedge fund holdings that look more like sells: http://investorplace.com/2012/05/hedge-fund-darlings-that-look-like-sells/

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