When hedge funds or other major investors acquire more than 5% of the outstanding shares of a stock, or make significant changes to their position, they must file fairly quickly with the SEC, which discloses the filings to the public. This allows investors a relatively fresh look at what stocks managers think are good buys, though the disclosure requirements tend to mean that only large positions in mid cap or small cap stocks are reported. Investors can then look at these stocks and decide if they are in fact good values or are better left alone. Here are five stocks that hedge funds have bought recently:
Billionaire Ken Griffin’s Citadel Investment Group (check out Griffin’s favorite stocks) reported owning just over 4 million shares of Brinker International, Inc. (NYSE:EAT), which owns the Chilis and Maggiano’s Little Italy restaurant brands. This was up from 80,000 shares at the beginning of October, so we know that the fund has been buying over the last two months. Brinker had made it onto our list of the most popular restaurant stocks among hedge funds for the third quarter, a list dominated by quick service restaurants. With Brinker carrying a trailing P/E of 16, and earnings up 18% last quarter versus a year earlier (though revenue growth was much weaker) it and other table service restaurants such as Darden Restaurants, Inc. (NYSE:DRI) might be good values.
MHR Fund Management, which is managed by former Carl Icahn employee Mark Rachesky, increased its stake in Navistar International Corp (NYSE:NAV) to 12 million shares. Icahn, a billionaire activist investor (see Icahn’s stock picks), had bought up shares of Navistar and of Oshkosh Corporation (NYSE:OSK) believing that he could create shareholder value by merging the two. Navistar is barely profitable on a trailing basis, and the stock is down 42% in the last year as business has suffered. We think we would avoid it. Read more about Icahn, Rachesky, Navistar, and Oshkosh.
Christopher Shackelton and Adam Gray’s Coliseum Capital Management (see Coliseum’s stock picks) has bought an additional 110,000 shares in The Providence Service Corporation (NASDAQ:PRSC) at prices roughly between $14.30 and $14.90. This gives the value and activist hedge fund over 2.3 million shares of the company’s stock. Providence Service is a $200 million market cap company providing specialized counseling, social services, and transportation for both healthcare providers and schoolchildren. Earnings were down 41% last quarter from a year ago despite rising revenue, and the stock trades at 24 times trailing earnings. Wall Street analysts expect the company to recover in 2013, and the forward P/E is only 13. It might be worth considering if Providence Service can reverse the trend in earnings.
A 13G filed with the SEC has disclosed that Philip Hempleman’s Ardsley Partners owns 1.6 million shares of learning and collaboration software company Saba Software, Inc. (NASDAQ:SABA). Our database of 13F filings shows that Ardsley, which now owns over 5% of the shares outstanding, had 900,000 shares in its portfolio at the end of the third quarter (see more of Ardsley’s stock picks). Saba has a market capitalization of about $240 million (and over $1 million in average daily dollar volume). The company announced in November that it will need to restate historical financial statements, though its most recent report suggested that operational figures such as cloud billings and customer signings are up. We wouldn’t make any moves on the company without more information.
Steelhead Partners reported owning just under 20 million shares of Gold Reserve Inc. (NYSE:GRZ), a $180 million market cap mining company (an average of 180,000 shares are traded daily, at a price close to $3). Steelhead had owned close to 12 million shares at the beginning of October (find more stocks the fund owned) and its most recent purchase gives it 27% of the shares outstanding. As an exploration stage company, Gold Reserve is unprofitable on a trailing basis and is not expected to have positive earnings next year either. It is up 5% year to date, but up 71% in the last two years. We don’t think that we would buy this stock either.
