Multi-Billion Dollar Fund Manager Bullish on Financial Titans…and Google?
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Clough Capital Partners, managed by Charles Clough, is nicely diversified with stocks from the financial, technology, healthcare and consumer goods sectors, according to its latest 13F filing with the SEC. Clough, a University of Chicago M.B.A. graduate, launched Clough Capital Partners in 2000 after working as a Chief Investment Strategist for more than a decade at Merrill Lynch.
Clough has been selected to the Institutional Investor All-America Research Team at least a dozen times, so needless to say, it’s important to pay attention to his stock picks. Let’s take a look at the top five picks of the $5 billion fund.
Number one is banking giant Bank of America (NYSE: BAC). Trading in Bank of America this year is not for the faint-hearted, as the stock has gyrated between $11 and $12 per share in very active trading. Fortunately for the bulls, there are enough positives fundamentally to keep the bears at bay. For starters, Bank of America is priced fairly cheap compared to the rest of the banking sector, valued at a mere 60% of book value parity versus an industry average of around 100%. Merrill Lynch has also surpassed Goldman Sachs and JP Morgan in investment banking activity this year, and the housing market improvement—and subsequent need for mortgages—will have the expected impact on Bank of America’s bottom line. However, the stock is looking technically vulnerable above the $12.50 mark, as it continues to succumb to profit taking at each test of this level.
At number two is Google (NASDAQ: GOOG). Clough Capital increased its position in Google by 25% during the fourth quarter for very good reason. With the impending release of the Samsung Galaxy S IV and a recent endorsement from IDC—which expects Android to power more tablets than Apple—the outlook for Google is unmistakably bullish. Shares of the tech giant are not only outperforming both the S&P and NASDAQ, but also their closest competitors: Yahoo, Microsoft and Apple. The next target for Google is $850—technical resistance—but analysts are looking for a test of $1,000 by the end of the year.
Coming in at number three is Citigroup (NYSE: C). After increasing his position in Citigroup for most of last year, Clough has cut 32% off his portfolio. The stock is starting to show fatigue at the $47 to $48 per share level, which could be the result of a lackluster earnings report last quarter. Net income, EPS and revenue are all down for FY2012 compared to one year earlier. Although the banking sector is getting a boost from the bullish outlook on housing, there are plenty of other banking stocks that look much more attractive than Citigroup, such as Wells Fargo. One hedge fund manager who has been buying Wells Fargo lately? Hint: his name is Warren Buffett.
A new addition to Clough Capital is American International Group (NYSE: AIG), number four of its top five equity picks. After its 11th hour bailout by the Government in 2009 as a result of AIG’s disastrous decision to underwrite credit-default swaps on mortgage-backed securities, the insurer has returned to its core business. The leaner, meaner insurer’s stock price has climbed steadily off its 2011-low near $20 per share, last trading just below the $40 mark. Less than impressive financials, however: 2012 revenue is down 45% from 2011 and competition from Hartford, American Financial and other insurance companies, has many analysts recommending a HOLD for AIG at the moment. Still, this stock was hedge funds’ new No. 1 in Q4, so it’s worth paying attention to the smart money’s sentiment.
Rounding out Clough’s top five is the tax and banking service provider H&R Block (NYSE: HRB). Because of the delay in the 2013 tax-filing season from last year’s fiscal cliff debacle, and subsequent action by the IRS to delay submission of certain returns until Jan 29, revenue in H&R’s tax services sector was down almost 30%.
The company deferred $15 million of revenue to its fiscal 4Q, which caused some pressure on the stock price at the start of the year. Shares have, however, surged 8.9% to a four-and-a-half year high of $28.27 of late, on the heels of remarks by CEO William Cobb that this year’s filings will grow by 1% to 2%. Broadly speaking, H&R is planning to take full advantage of taxpayers’ anticipated confusion over the change in tax laws and implementation of Obamacare this year. It’s easy to see why this hedgie is bullish.
Each of these investments represents obvious upside, but the one common thread that exists among the five is that they’re supported by the smart money at large. In fact, only H&R Block sits outside of the hedge fund industry’s consensus top ten, and AIG is smart money’s new No. 1 holding. Check out who the insurer displaced, here on Insider Monkey.
This article is written by Amy Thielen and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. Meena has long positions in Apple, Google, Microsoft, and Citigroup. The Motley Fool recommends American International Group and Google. The Motley Fool owns shares of American International Group, Bank of America, Citigroup Inc , and Google and has the following options: Long Jan 2014 $25 Calls on American International Group. 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!