Hedge Funds Love These Ten Services Stocks

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Our database of 13F filings allows us to see details about an individual hedge fund or other notable investor’s long stock positions. We can also combine what we know about what different filers are buying to see which stocks are in favor or out of favor with the hedge fund community. For example, we recently discussed the ten most popular stocks among hedge funds for the third quarter of the year (see the full rankings). By taking into account the characteristics of different stocks as well, we can see what the hedge funds like in a narrower universe of stocks. Here are the ten most popular stocks in the services sector:

Visa (NYSE: V) took the top spot in our rankings of services stocks, with 69 filers in our database reporting a position in the credit card issuer. Visa’s stock price has risen 64% in the last year as the entire credit card industry has been hot; revenue and earnings have been rising as well. Billionaire Ken Fisher’s Fisher Asset Management increased its stake in the company by 47% last quarter to a total of 4.8 million shares (see more stock picks from Fisher Asset Management).

Fellow credit card issuer Mastercard (MA) lost a little bit of ground on Visa during the quarter, but with 64 hedge funds owning the stock it still managed to win the #2 slot. Mastercard’s financials show that it hasn’t been growing as quickly as Visa, but there’s still modest growth, though the forward P/E is a bit high at 19.

63 filers in our database reported owning eBay (NASDAQ: EBAY), another stock that has been soaring in the last year off of strong results. eBay trades at 17 times trailing earnings, and its historical growth rate suggests that it might be a buy. Lone Pine Capital, managed by billionaire Tiger Cub Stephen Mandel, owned 12.6 million shares of the stock at the end of September (find more stocks that billionaire Stephen Mandel likes).

Priceline.com (NASDAQ: PCLN) was another top services pick as the travel services company saw its ownership increase from 54 funds at the beginning of July to 62 at the end of September. With its purchase of Kayak, Priceline has secured its spot as the market leader for some time, and even before that its business had been growing rapidly.

The soon-to-be-broken up News Corp (NWS) was another hedge fund favorite with 60 filers in our database reporting a position (though this was down from 67 last quarter). Its trailing P/E is 22, which would normally be high, but the theory is that each sibling company will be better managed than the current parent as their managements will be better able to focus on improving the business.

58 hedge funds and other notable investors owned Amazon.com (NASDAQ: AMZN). We see this as a very speculative bet that the company’s wealth of business opportunities will not only pay off, but drive extremely high profits in the future (the $106 billion market cap company turned in a net loss last quarter, and currently trades at 133 times consensus 2013 earnings).

Tyco International (TYC), which is now primarily a fire protection services company following the breakup of the larger Tyco, had 53 filers in our database report a position in the stock. Tyco now has a market capitalization of $12.7 billion, and as with News Corp the theory is that management will perform better now that the other business units are out of the picture.

Several hedge funds initiated positions in Dollar General (DG) during the third quarter, with a total of 50 owning the stock at the beginning of October. The dollar store looks like it could be a good deal at 18 times trailing earnings and with strong revenue and earnings growth (net income was 47% higher in the third quarter than a year earlier).

Diversified entertainment company Liberty Media (LMCA) also made our list of top services stocks. 48 funds owned shares of the provider of Starz, Encore, and other media assets (the company also owns the Atlanta Braves). We think that the stock looks expensive on the basis of its forward earnings estimates.

Disney (NYSE: DIS) squeaked into the #10 spot (sorry) as 47 filers in our database owned the stock, up from 41 three months earlier. Earnings are strong at Disney, thanks in part to strong performance in the Parks and Resorts segment, and the company has already made big news this quarter with the acquisition of Lucasfilm. This provides it a wealth of content to monetize in TV, film, parks, and other channels.


This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Amazon.com, Walt Disney, and Priceline.com. Motley Fool newsletter services recommend Amazon.com, Walt Disney, eBay, Priceline.com, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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