Billionaire Bill Ackman Puts His Money Where His Mouth Is, While Carl Icahn Reveals His Newest Activist Target

The stock selection process is generally quite cumbersome and expensive on some occasions, especially when one does not have the necessary knowledge base and skills to pursue an appropriate analysis. Choosing the right stock to invest in might be harder than it sounds, so some individual investors tend to focus on hedge funds’ 13Fs and other filings submitted with the SEC to identify potential winners. These investment vehicles are widely-known for their strong stock picking abilities, which is one of the primary reasons smart money investors are so highly scrutinized. Of course, hedge fund managers may make the wrong moves at times, but one does not necessarily have to follow each move taken by these managers. Instead, tracking 13G and 13D filings can serve as part of a broader stock picking process. Hence, this article will discuss two activist filings and one 13G filing submitted by three widely-known hedge fund firms tracked by Insider Monkey.

Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 53 percentage points, returning 102% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.

According to a freshly-amended 13D filed with the SEC, Bill Ackman’s Pershing Square Capital Management currently owns 34.12 million shares of the struggling Valeant Pharmaceuticals Intl Inc. (NYSE:VRX), accounting for 9.9% of the company’s outstanding common stock. This denotes an increase of 14.64 million shares from the position revealed through the latest round of 13F filings. This move comes amid a turbulent period for the specialty pharmaceutical and medical device company, which has seen its shares drop by over 60% since mid-September. In a conference call that took place at the end of October, Ackman said “The biggest regret I have with Valeant is that we’re not in a position to buy more”. However, it appears that the billionaire activist investor did indeed manage to find more capital to buy additional Valeant shares. The recent public scrutiny of Valeant’s pricing and its distribution practices, along with the public statements made by a short-seller regarding Valeant’s business practices and financial accounting, have put significant weight on the stock lately. Nevertheless, the stock is trading at a very attractive forward price-to-earnings ratio of 5.95, which compares with a ratio of 17.48 for the S&P 500 Index. Therefore, Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) may represent a great buying opportunity should analysts’ earnings estimates be accurate and the negative publicity fades away. It is worth pointing out that the shares of Valeant have advanced by over 3% in today’s pre-market session, which might suggest that market participants believe in Ackman’s stance on the company’s potential. Even so, it remains to be seen to what extend Valeant’s ongoing issues will impact its future potential.

The specialty pharmaceutical company lost some of its charm among the hedge funds monitored by our team during the third quarter, as the number of smart money investors with stakes in the company declined to 88 from 98 quarter-over-quarter. These hedge fund investors amassed slightly more than 29% of Valeant’s common stock as of September 30, while the value of their stakes shrank to $17.73 billion from $22.02 billion quarter-over-quarter, owning to the sharp decline in the stock. Jeffrey Ubben’s ValueAct Capital held its stake in Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) unchanged during the third quarter at 14.99 million shares.

The next page of the article discusses Carl Icahn’s new activist target and Stephen Mandel’s position in Dollar Tree Inc. (NASDAQ:DLTR).