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.
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.