Hedge funds are one of the most powerful behind-the-scenes forces at work in the market on a daily basis. They have billions of dollars of capital at their disposal and, thanks to light regulations, are able to deploy their funds in almost any way they see fit, from shorting stocks, to buying derivatives, to taking oversized outright positions in companies.
It's for this reason that knowing which stocks are darlings of the industry can be an important factor in an investor's analysis. With this in mind, after culling through the 13F filings of some of the biggest and best-known hedge funds, I've identified three stocks that are currently in vogue among these otherwise secretive investment vehicles.
1. Netflix (NFLX 4.17%)The video streaming company has had a tumultuous two years. After reaching an all-time high of nearly $300 a share in July 2011, it proceeded to lose more than 80% of its value. Since the end of last year, however, it's mounted an impressive reascent, roughly quadrupling in value since the end of September. And as of today, its shares trade for a respectable $217 a pop.
Few investors are likely as happy about Neflix's recent performance as Carl Icahn is -- click here to see a list of his 10 largest stock holdings. At some point during the fourth quarter of last year, the activist investor took a massive 5.5 million share position in the popular online service company, amounting to a 9.5% ownership stake. But don't give him too much credit, according to Icahn. The idea originated with his son, Brett Icahn, and his investment partner David Schechter, who have been given roughly $3 billion to invest.
2. Canadian Pacific Railway (CP 1.50%)While the days of the robber baron are far from back, that hasn't stopped a number of high-profile investors from taking the dive into railroads. The most notable example of this was Warren Buffett's acquisition of Burlington Northern Santa Fe, which was announced in 2009 but consummated in 2010.
As Buffett said in the latter year's shareholder letter, "Both [Charlie Munger and I] are enthusiastic about BNSF's future because railroads have major cost and environmental advantages over trucking, their main competitor... When traffic travels by rail, society benefits."
Another railroad that's caught the eye of a hedge fund mogul is the Canadian Pacific Railway, which Bill Ackman of Pershing Square Capital Management went headlong into at the end of 2011 with a 14% stake in the transcontinental line -- click here to see Ackman's nine other major holdings. Since then, Ackman has moved aggressively, shaking up the board with his own slate of directors and ousting then-CEO Fred Green. Over the past two years, shares of the company have been up 88%.
3. Apple (AAPL 0.64%)Finally, while the Mac maker has certainly seen better days -- its stock is 38% off the all-time high -- that hasn't stopped hedge funds from coveting its shares. The most notable of these is Greenlight Capital, the multibillion dollar fund run by David Einhorn, who made his name shorting financial companies like Allied Capital and Lehman Brothers.
Given Apple's size, Einhorn's $562 million stake amounts to a mere 0.142% stake in the outstanding shares. But this hasn't stopped him from loudly agitating for change. Earlier this year, he suggested that the technology company issue dividend-paying preferred shares to its common stockholders. And when Apple's proxy statement didn't adequately present the option, he took the company to court and won -- though the move didn't ultimately lead to the passage of his proposal.
The Foolish bottom line
Should it matter whether hedge funds love the stocks you're invested in? It'd be nice to say that it doesn't, but the reality is that it can matter a whole lot.
