Ten bets from top hedge fund managers

The ideas were flowing on July 17 as Wall Street's biggest investors gathered in New York City at the Delivering Alpha conference presented by CNBC and Institutional Investor. The overriding theme was how do you make money in this market? Here are 10 diverse picks from the investing pros.

By CNBC's Jeff Cox
Posted 19 July, 2013

Hedge fund giant John Paulson may have lost big on gold, but he believes he's onto a winner with housing. In his first-ever TV interview, Paulson said the housing recovery has just begun and is "the best investment any individual can make. How ironic: It was housing's demise in the last decade that helped make Paulson his billion-dollar-plus fortune.

In one of the more stunning developments, Kynikos Associates chief Jim Chanos took on one of the stock market's big dogs: Caterpillar. The construction equipment maker has been the second-worst performer in 2013 on the Dow Jones Industrial Average, and Chanos said there's more damage to come. A slowdown in mining and global growth will hurt CAT, said Chanos, who also alluded to some accounting issues at the company.

In 2012, Leon Cooperman was a sure beat at Delivering Alpha. He picked 10 stocks then as surefire plays, and all 10 were winners in the year ahead. This year, he also gave 10 picks and divided them into three categories. The first was "Quality Growth" and he delivered three names: Express Scripts, Qualcomm and Thermo Fisher Scientific.

Caterpillar isn't the only company Chanos is betting against. He also doesn't like Hewlett-Packard, a company he called "the ultimate value trap" at last year's Delivering Alpha. Bad call, Mr. Chanos. HP's stock has surged 36 percent since then and a stunning 125 percent since hitting decade-long lows in November. Still, he thinks accounting issues are going to catch up with the company.

The snack maker is a company worth watching, particularly after Trian Fund Management's Nelson Peltz suggested that Pepsi should acquire Mondelez, which was spun off from Kraft last year. Trian owns 12 million Pepsi shares and 40 million shares of Mondelez. Shares of the company have been on a steady trek higher since February.

One of the more cryptic moves of the conference came when it was mentioned that Nelson Peltz has bought up a big stake in DuPont. Pressed further about it, he refused to elaborate. "you asked me in the green room about 10 minutes ago: 'If you say DuPont, what comes to mind?" Remember what I told you? I said: 'Paint.' That's all you're going to get today," Peltz told CNBC's Andrew Ross Sorkin.

So what else did the conference's hot hand like? Well, the Omega Advisors hedge fund kingpin broke out another group that he put in the bucket of "Phoenix from the ashes" stocks. These companies aren't exactly household names, but they might be now that Cooperman has bestowed his imprimatur on them. They are Qualicorp SA and SandRidge Energy.

Sure, why not? The bruised and battered personal computer maker is in the midst of a rough and tumble battle between founder Michael Dell and activist investor Carl Icahn, who easily was the conference's most colorful interview. Investors seem to be taking the position that the company is in a win-win situation, with the blistering brouhaha likely to result in a great deal for shareholders no matter who comes out on top. Consequently, shares have been trading higher and threatening to rebound after a rough month.

The "rotation" theme of money flowing from bonds into stocks has proven to be one of the most controversial investing theses of 2013, and there was no shortage of discussion at Delivering Alpha. Cooperman flatly advised against at least Treasury bonds. The consensus was that investors will need at the very least to be much more selective when it comes to choosing where they want to put money to work in fixed income.

Leon Cooperman's final investing bucket broke down into thestocks he called "growth with high-income situations." At last year's "Alpha," Cooperman expressed pretty strong bullishness on stocks. This year, he tempered his enthusiasm. For investors unsure of market direction and looking to keep the income stream going, he had four recommendations: Arbor Realty Trust, Atlas Resource Partners, Chimera Investment, KKR Financial Holdings and THL Credit.