13D and 13G filings from hedge funds reveal large positions taken by hedge funds (or significant changes in these positions) fairly recently after the fund has made its move, and so can serve as up-to-date recommendations from fund managers. Investors shouldn’t be buying each and every stock that any fund happens to buy, so it’s useful to take a brief look at companies seeing hedge fund buying and determine if they are worthy of further research. Here are five stocks hedge funds have been buying recently:
Billionaire Bill Ackman’s Pershing Square, which announced a large short position in Herbalife Ltd. (NYSE:HLF) in December, now has another billionaire taking the other side of the trade: Third Point, managed by Dan Loeb, now owns 8.2% of the outstanding shares. Check out Loeb’s other stock picks. Ackman is basing his argument on some combination of government action and a widespread exodus of distributors from the business, and Loeb is unconvinced. If Herbalife Ltd. (NYSE:HLF) isn’t going to be negatively impacted by events, then it actually looks cheap at 10 times trailing earnings and its revenue and earnings have actually been increasing somewhat. We’d note that the stock has been rallying and that Loeb may have bought in at a considerably lower price than where Herbalife Ltd. (NYSE:HLF) is currently trading.
AQR Capital Management, which is managed by Cliff Asness, has taken a position of about 590,000 shares in Kayak Software Corp (NASDAQ:KYAK). Kayak is in the process of being acquired by Priceline.com Inc (NASDAQ:PCLN); hedge funds often like to invest in merger arbitrage because the returns depend on the deal going through, rather than business performance, and so have little connection to market conditions (learn what to look out for in merger arbitrage). As far as we can tell the deal is on track to close this quarter after receiving approval from regulators.
Royce & Associates has slightly increased its stake in EnerSys (NYSE:ENS) to a total of 2.7 million shares. The fund is managed by Chuck Royce and tends to focus on small-cap and mid-cap stocks. See more stocks that Royce likes. EnerSys manufactures industrial batteries that are often used as reserve power systems and has recently been experiencing good earnings growth driven by improved margins. Its most recent quarterly report had 58% growth in earnings per share from a year earlier. Enersys trades at only 11 times trailing earnings and might be a good value find by Royce.
Carlson Capital has been buying a nuclear waste related company:
A 13D filed with the SEC has Carlson Capital, a hedge fund managed by Clint Carlson, owning 8 million shares of EnergySolutions, Inc. (NYSE:ES), up from 2.3 million shares at the end of September. Find more stocks Carlson owned. EnergySolutions is a waste management company focused on decontamination and decommissioning of nuclear facilities as well as remediation for areas affected by hazardous or nuclear waste. It has a market capitalization of about $340 million (with over 1 million shares traded daily), representing 11 times consensus earnings for 2013. The company is unprofitable on a trailing basis due to a poor Q4 2011; good results are expected for the same period in 2012 which would leave EnergySolutions profitable for the year.
James Flynn’s Deerfield Management (research stocks that Deerfield likes) has a position of 7.9 million shares in Dendreon Corporation (NASDAQ:DNDN), a biotech company whose primary product is cancer treatment Provenge. Dendreon is down 84% in the last two years as sales of Provenge have disappointed and the company has been reporting large losses. Sell-side expectations are that it will be unprofitable next year as well. There is heavy short interest in Dendreon, and with potential cash concerns in the next few years we don’t think that it’s a good buy.
Disclosure: I do not own shares in any stock mentioned in this article.
