INVESTMENT HACKS

The hedge funds have finished their SEC mandated holdings reports. So now it’s time to take stock of where they are putting their money. The tech sector, which was long a favorite of the hedge funds, is underperforming right now. Going into the Thanksgiving weekend, the ‘FAANG’ (Facebook, Amazon, Apple, Netflix, and Alphabet’s Google) stocks as a group have lost nearly $1 trillion since their peak valuations earlier this year.

Without the tech stocks no longer generating returns, the funds are moving towards more defensive investments. Think utility companies, health insurers, and defense contractors. According to Goldman Sachs’ David Kostin, “Hedge funds rotated toward defensive sectors during the third quarter, lifting utilities to an overweight vs. the Russell 3000 for the first time since 2008. Funds also added to positions in consumer staples while reducing positions in the info tech, communication services, and consumer discretionary sectors.”

Moving along this track, major hedge funds have opened positions in Boeing, UnitedHealth, and Edison International this past quarter. We’ll use the TipRanks database to find out what the analysts have to say about these investments.

Boeing Company (BA – Research Report)

The Seattle-based aerospace company is best known for its family of airliners, ranging from the famous 747 to the latest 737 MAX. In addition to its successful commercial aircraft, Boeing is a major player in the defense industry, producing variety of helicopters, fighters, and tankers for the US Department of Defense.

Boeing is also a go-to stock for hedge funds. According to TipRanks data, the major funds increased holdings in Boeing by more than 300,000 shares in the last quarter. While BA’s share price has slumped recently – caught up in the general market fall – the hedge fund acquisitions send a message of confidence in the stock.

Top analysts agree. Earlier this week, Cowen’s Cai Rumohr (Track Record & Ratings) said, “Yesterday’s 4%+ price drop likely reflects company-specific worries and a bear market decline that spared few stocks. It’s hard to call when/if the market selloff will reverse; but concerns over BA’s headline issues look overblown given its 8.8% 2019 cash flow yield.” Rumohr set a very aggressive $445 price target on Boeing, suggesting a 40% upside. His average return when recommending BA stands at 27.6%.

Jefferies’ Sheila Kahyaoglu (Track Record & Ratings) refers to the ‘company-specific worries’ when she writes, “Boeing’s deliveries are expected to ramp in November and December as is the typical seasonal pattern.” Expecting the company to see over 810 aircraft deliveries for FY18, she gives Boeing a ‘Buy’ rating and sets a price target of $420 – a 32% upside.

The analyst consensus on Boeing, based on six ‘Buy’ and two ‘Hold’ ratings, is a ‘Strong Buy.’ The average price target is $423, an upside of 33% from the current $317 share price.

View BA Price Target & Analyst Ratings Detail

UnitedHealth Group, Incorporated (UNH – Research Report)

UnitedHealth is the world’s largest health insurance provider, with more than 115 million customers worldwide and over $200 billion in revenue. Earlier this month, the company saw its highest share price of the last five years, before slipping 5% to the current price of $260.

During the last quarter, billionaire investor George Soros put more than $11 million into UNH, increasing his holding in the company by over 100%.

Top rated market analysts agree with Soros’ outlook on the stock. Last month, after the company reported a Q3 earnings beat, Argus Research’s David Toung (Track Record & Ratings) wrote, “the results were driven by “[S]trong performances from both the UnitedHealthcare global health care benefits business and the Optum health services business.” Toung set a $285 price target on the stock, for a 5% upside prediction.

Cantor Fitzgerald’s Steven Halper (Track Record & Ratings) elaborated on UNH’s business investments in his own review, saying, “UNH continues to invest in technology and innovative programs to drive consumer engagement and satisfaction. These investments, typically related to its Optum segment, are key levers which UNH uses increase performance of its health plans sold by its United Healthcare (UHC) segment and other third-party payers.” Halper’s price target of $310 suggests a 19% upside for the stock.

The analyst consensus on UNH, with 10 ‘Buy’ ratings versus a single ‘Hold,’ is a ‘Strong Buy. The average upside is 16%, or $302 compared to the current share price of $260.

View UNH Price Target & Analyst Ratings Detail

Edison International (EIX – Research Report)

Like the other stocks on this list, Edison International took a hit from the overall market fall earlier this month. The Southern California-based electric utility company has also suffered somewhat from its exposure to the major wildfires in that state, with some worry that the company’s assets may be at physical risk from the fires.

That said, however, EIX appears to be well positioned to benefit from a general hedge fund move toward utility stocks. The share price is up 12% from its Nov 15 low point, and in the quarter just ended hedge fund holdings in the company increased by 1.3 million shares.

Market analysts are also taking a sanguine view of EIX, giving the company four ‘Buy’ ratings in the last week. Two of those ratings bear closer scrutiny, as they are also upgrades from previous ratings of ‘Neutral’ or ‘Hold.’ Citigroup’s Praful Mehta (Track Record & Ratings) moved first on the upgrade, setting a ‘Buy’ on EIX with a price target of $59. His target is an 11% upside from the stock’s current $53 price.

Mizuho’s Paul Fremont (Track Record & Ratings) moved next, moving EIX to ‘Buy’ from ‘Neutral’ and giving a $57.50 price target. He acknowledged wildfire liabilities that the company may face, before saying that he “estimates “more upside opportunity than downside opportunity” in the company’s current situation.

The analyst consensus on EIX is a ‘Strong Buy,’ with a $68 average price target giving a 27% upside potential against the current share price of $53.

View EIX Price Target & Analyst Ratings Detail