>>> Hedge Fund Consensus Buy List* Alibaba Group (BABA): One of the most anticipated initial public offerings in quite some time, Alibaba
Group completed its IPO in the third quarter and almost half of the hedge funds covered in this issue took part.
Viking Global, Third Point, Maverick, Paulson & Co, Blue Ridge, Coatue, Tiger and many more all show new
stakes. One thing worth highlighting here though: a few of these funds held stakes in Alibaba prior to the IPO
(like Paulson & Co), and so while their stake is not ‘new,’ it is visible in filings for the first time. Others, like
Third Point, had been playing BABA proxies like Softbank (SFTBY), which owns a large stake in Alibaba.
* AbbVie (ABBV): This company was spun-off from Abbott Labs (ABT) at the end of 2012 and hedge funds
were out buying as it was part of the tax inversion flurry that swept through Wall Street. AbbVie agreed to tie
up with Shire (SHPG) in July in order to lower its taxes. Once the US Treasury unveiled its anti-inversion
policy, AbbVie stepped back from the deal. So more than anything, this stock was a risk arbitrage play for
most during the quarter. Paulson & Co was the biggest buyer during Q3 (and they bought Shire shares too).
* Dollar General (DG): Dollar stores have been a popular play among hedge funds over the past few years.
Dollar General has seemingly always been the preferred pick and shares dipped briefly at the beginning of the
quarter, providing funds like Passport, JANA, and Farallon an entry point.
* 21st Century Fox (FOXA / FOX): This stock was more of a ‘mixed activity’ name, as other funds were
trimming their stakes. However, numerous hedge funds scooped up shares of FOXA during Q3 as the
company tried to takeover Time Warner (TWX). After this announcement, FOXA shares sold off to the point
that ValueAct Capital (a fund newly covered by the newsletter) purchased around a $1 billion stake. Maverick
Capital and Glenview Capital also were out buying shares as well. Fox ultimately abandoned the takeover plan
and instead committed to repurchasing its own shares.
* Liberty Media (LMCK): This stock graces this list not due to open market buying, but for informational
purposes. The vast majority of funds that show ‘new’ stakes in LMCK received them from their existing
positions in Liberty Media (LMCA). LMCA completed a stock split during the quarter and they distributed
shares of a newly created share class ~ LMCK. As such, owners of LMCA received new LMCK shares in the
split and that’s why you’ll see so many ‘new’ stakes throughout this issue.
>>> Consensus Increased Positions
* Actavis (ACT): This stock lands on the consensus increase list for the second consecutive quarter. As detailed
before, this is a tax inversion roll-up play that has been popular among hedge funds lately (think somewhat
along the lines of Valeant Pharmaceuticals ~ VRX). Just recently, ACT announced a much higher offer than
VRX in the bidding for Allergan (AGN) and it looks like they’ll win that battle. Omega, Paulson, Viking, and
Third Point all added to their pre-existing ACT positions during Q3.
* eBay (EBAY): This is another stock that lands on this list for the second quarter in a row. The company
recently announced a huge catalyst, as it will spin-off its PayPal division next year. This is exactly what many
investors were looking for. While shares have largely traded sideways for a few years, it seems that hedge
funds are always out adding to their stake once shares start trading below $51 and especially below $50.
EBAY spiked to $57 on the spin-off news, sold off hard all the way down to $47, and has since rebounded to
$55. Carl Icahn, Farallon, Coatue, Baupost, and JANA all boosted their holdings during Q3.
* Mastercard (MA): This pure-play payment processing company has huge network effects and is a cashflow
generating machine. Rarely offering investors a ‘cheap’ entry point, MA shares pulled back slightly and traded
sideways during the quarter and investors such as Berkshire Hathaway, Tiger Global, Viking Global, and Lone
Pine Capital all took advantage. The thesis on this one is simple: a global shift from paying with cash to paying
with plastic.
* Priceline (PCLN): A favorite stock among growth-at-a-reasonable-price (GARP) investors, PCLN shares saw
a rare pullback during the quarter and Passport, Farallon, Appaloosa, and Lone Pine all bought more.
* DirecTV (DTV): This satellite television company received a takeout offer from AT&T (T) this year and as
such has traded like a risk arbitrage play. Farallon and Paulson (both of whom pursue arbitrage strategies)
added to their positions. Berkshire Hathaway was also out adding to their stake as well.
>>> Consensus Sold Positions
* American Airlines (AAL): This popular hedge fund trade finally came to an end for funds like Lone Pine,
Perry, Tiger, and Viking. They had been long under the thesis that the domestic airline industry had
consolidated and could raise prices (and they had tailwinds of falling oil prices). Perhaps they sold on fears of
Ebola affecting passenger travel volumes, but most likely it seems like they were just locking in gains from
their successful trade.
* American International Group (AIG): This stock has been on the ‘consensus reduce’ list for a while (and is
again this quarter), but this is the first time it’s appeared on the outright ‘consensus sell’ list. While many funds
had been trimming their stakes as the discount to book value has slowly narrowed, Pennant, Third Point, and
Appaloosa all exited their stakes entirely during the quarter. This has been a profitable investment for all
involved.
* Walgreen (WAG): The company disappointed investors when it announced that they would not be pursuing a
tax inversion play. Funds like Glenview, Maverick, and Third Point all exited their stakes.
* Questcor Pharmaceuticals (QCOR): This stock no longer appears in many portfolios because they were
taken over by Mallinckrodt (MNK). Funds weren’t out actively selling shares.
* Idenix Pharmaceuticals (IDIX)): Just like QCOR above, this isn’t a case of funds actively dumping shares.
The company was taken over by Merck (MRK) and shares no longer trade.
>>> Consensus Decreased Positions
* American International Group (AIG): This stock appears on this list for the fourth straight quarter. Every
few months, hedge funds sell some AIG to lock-in gains as the stock slowly appreciates and narrows its
discount to book value. This has been a highly successful play for many investors post-financial crisis.
Omega, Glenview, Perry, and Fairholme all trimmed their stakes during Q3.
* HCA (HCA): Funds such as Bridger, Omega, Glenview, and Maverick all sold some of their HCA shares.
This has been a wildly profitable play for funds involved and they’ve locked in some gains as their position
sizes have swelled. Glenview Capital has been the loudest advocate here, saying that Obamacare would boost
profitability at for-profit hospitals and industry consolidation could spur growth.
* Apple (AAPL): This also looks to be a case of profit-taking as AAPL shares have had a nice run over the past
few months as the company unveiled new iPads and iPhones, as well as the brand new Apple Watch. Tiger,
Passport, Appaloosa, Omega, and Greenlight all cut their position sizes.
* Charter Communications (CHTR): This turnaround cable play has been a very popular bet among hedge
funds. As shares have appreciated somewhat, Passport, Bridger, Farallon, Coatue, and Tiger Global all reduced
their position sizes a bit. These sales are a bit more curious considering the long-term thesis on this play is still
very much intact and numerous other funds maintain sizable stakes.
* 21st Century Fox (FOXA / FOX): In reality, this is more of a ‘mixed activity’ name than consensus,
considering a ton of funds started brand new positions. Farallon, Coatue, Viking Global, and Tiger Global all
reduced their holdings though during Q3. Just keep in mind that ValueAct started a brand new $1 billion stake
in the company.