The most complete picture of what hedge funds own comes in the form of quarterly 13F filings. Even though the information in these filings is somewhat out of date by the time it is made public, it is still possible to use it to earn profits; we have found that the most popular small cap stocks among hedge funds earn an excess return of 18 percentage points per year and we think that other strategies are possible as well. However, we do also track 13D and 13G filings to see what hedge funds and other notable investors have bought recently (these filings are generally required when a major investor owns over 5% of a company, and are filed relatively quickly). Here are five stocks which the filers we track have been buying:
Warren Buffett’s Berkshire Hathaway keeps buying DaVita HealthCare Partners Inc (NYSE:DVA) and is now closing in on 15 million shares of the kidney dialysis services company, which operates both independent dialysis centers and facilities located in hospitals. It was one of Berkshire’s ten largest holdings by market value at the end of December (find Buffett’s favorite stocks). DaVita is priced for growth at a trailing earnings multiple of 23, and in fact sales have been up strongly with a 33% rise last quarter compared to the fourth quarter of 2011. However, earnings growth has lagged and despite Buffett’s involvement we’d be cautious about buying DaVita.
Here’s another stock Griffin likes:
Citadel was also buying shares of $1 billion market cap semiconductor product designer QLogic Corporation (NASDAQ:QLGC). QLogic’s business is going in a different direction than that of Buffalo Wild Wings; in its most recent quarter revenue was down 14% compared to the same period in the previous year and this was more or less in line with results in the last two quarters. Wall Street analysts expect that 2014 will be a decent year for QLogic, with their consensus implying a forward earnings multiple of 14. We would note that QLogic has close to $500 million in cash and cash equivalents on its balance sheet.
Ferro Corporation (NYSE:FOE), a specialty chemicals company, had Brigade Capital Management report a position of 4.7 million shares. While Ferro’s market capitalization is only about $590 million, nearly 2 million shares are traded on average per day and so we would say that there is plenty of volume. Ferro has been struggling with profitability though the sell-side is forecasting a recovery in 2013: the current-year P/E is 14. With a beta of 2.5, the stock is highly sensitive to changes in the broader economy and the company’s revenue numbers have not been good recently.
Luxor Capital Group, managed by Christian Leone, owned 6.7 million shares of CommonWealth REIT (NYSE:CWH) according to a filing with the SEC. CommonWealth invests in commercial and industrial real estate and has a market cap of $1.9 billion. Real estate investment trusts often pay high dividend yields because they are required to distribute much of their income to shareholders in order to maintain their favorable tax status, and CommonWealth is no exception with a yield of 4.2% going by recent dividend payments. The company did cut its quarterly dividend in half last year to current levels.
Disclosure: I own no shares of any stocks mentioned in this article.
