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5 Stocks to Buy Now That Low-Turnover Hedge Funds Love
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Even though many hedge funds had an awful 2018, they are still very popular with high net worth and institutional investors. One reason they remain popular is that many hedge funds are very nimble and can move in and out of positions quickly if needed. Plus, they tend to chart their own paths instead of following Wall Street trends, which can be a plus with the right fund manager.
In a new report, Jefferies analysts look at the positioning for high and low turnover hedge funds. We are far more interested in the low turnover funds, as they tend to be more conservative and less reactionary. Jefferies noted in the report that while low turnover funds favor stocks with larger capitalization and that pay a higher dividend yield, they also trade at a 2.6 times higher price to earnings, have far higher historical and future sales and EPS growth in addition to lower margins.
We screened the Jefferies list of stocks held by low turnover funds and found five that now look to be good additions to growth portfolios with a degree of risk tolerance.
Citigroup
This top bank has rallied back nicely from the December lows. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.
Trading at a still very cheap 8.7 times estimated 2019 earnings, this company looks very reasonable in what remains a pricey stock market. A continuing stock buyback program at the bank also is a positive.
Citigroup investors are paid a 2.76% dividend. The Wall Street consensus price objective for the shares is $77.15, and the stock closed trading on Friday at $64.47 a share.
Delta Air Lines
This company consistently has ranked high with Wall Street, but its stock sold off some recently and is offering a good entry point. Delta Air Lines Inc. (NYSE: DAL) and the regional Delta Connection carriers offer service to 334 destinations in 64 countries on six continents. Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 700 aircraft.
Wall Street analysts have long lauded that Delta has the most extensive hedging policy among the airlines and owns and operates a refinery in addition to a sizable hedging book. The stock outperformed last year, and if bookings and the economy continue to spike up in 2019, many believe that the company’s multiple stands to benefit the most among the major carriers.
Delta investors are paid a 2.15% dividend. The consensus price objective was last seen at $62.68. The stock closed at $48.96 on Friday.
Kinder Morgan
Executive Chairman Richard Kinder has been buying a ton of shares of the company recently, and that is a huge positive for shareholders. Kinder Morgan Inc. (NYSE: KMI) is one of the largest energy midstream companies, with diverse operations across the midstream energy value chain. Businesses include natural gas pipelines, liquids terminaling, CO2 production, as well as products pipelines.
Kinder, also the co-founder of the energy pipelines company, continues to buy more Kinder Morgan stock. From February 15 through 21, he bought more than 519,100 shares for a total of $9.9 million, or $19.05 per share on average, according to forms Kinder filed to the Securities and Exchange Commission. Kinder now owns 237 million Kinder Morgan shares in his personal account and 11.8 million more shares through a limited partnership.
Shareholders receive a solid 4.14% dividend. The posted consensus price target is $21.37, and shares were last seen trading at $19.74 apiece.
Microsoft
This top old-school technology stock posted all-time highs last year, and there is a massive $133.6 billion sitting on the company’s balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace so far this year and all of last.
Many Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service, while others maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. The cloud was big in the third-quarter earnings report, which was outstanding.
Microsoft shareholders currently receive a 1.64% dividend. The consensus price objective for the stock is $125.45, and the shares closed most recently at $112.53.
24/7 Wall St.Procter & Gamble
The stock offers a very solid dividend and safety. Procter & Gamble Co. (NYSE: PG) is another solid consumer staples stock for conservative investors to consider. It sells lots of very well-known household items that are essential for everyday life. Brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn.
The company actually is innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends.
Shareholders of Procter & Gamble are paid a 2.92% dividend. The posted consensus price objective is $97.38. The stock closed most recently at $98.44 per share.
These are five top stocks that low turnover hedge funds are holding, and they are all great picks for growth portfolios looking for total return. These companies all are leaders in their specific categories, and that is a plus for long-term investors.
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