Billionaire Ken Griffin’s Citadel Investment Group has reported a position of 1.6 million shares in Zillow Inc (NASDAQ:Z), a real estate sales and rentals website. Citadel’s 13F for the end of September had given the fund’s ownership at about 440,000 shares (check out more of billionaire Ken Griffin’s stock picks), so we can see that Griffin and his team have increased their stake by about 300% in the last two months. The market sees Zillow as a high growth stock: it trades at 50 times consensus earnings for 2013, and that figure includes substantial earnings growth from this year. The company recently revised its revenue guidance downward for the fourth quarter of the year, which had caused its stock price to drop from about $37 to below $24. The stock has recovered a bit since then, to about $27 per share. Zillow has been very acquisitive, recently purchasing rentals information website HotPads to continue a pattern of acquisitions from earlier in the year. There are also concerns about how sustainable its business model is, including suggestions that realtors aren’t viewing it as a valuable tool. We’d avoid the stock.
Berkshire Hathaway has been adding shares of DaVita HealthCare Partners Inc (NYSE:DVA) and now owns nearly 13 million shares, up from a little over 10 million two months ago. It looks to us like the dialysis services provider is getting close to being one of the ten largest holdings in Warren Buffett’s portfolio if it isn’t already (see Warren Buffett’s top stock picks). At a $10 billion market capitalization, DaVita trades at 19 times trailing earnings. In its most recent quarter, it reported that revenue had increased 12% and net income had grown 7% compared to the third quarter of 2011. Buffett’s continued interest is enough to make us consider the stock, though we would like to see a path to a higher growth rate at that multiple.
Marcato Capital, which is run by former Pershing Square employee Richard McGuire, increased its holdings of restaurant company DineEquity Inc (NYSE:DIN), which owns Applebee’s and IHOP, to over 1 million shares. At the beginning of October the fund had owned about 770,000 shares (find more stocks that Marcato owned). DineEquity trades at 15 times forward earnings estimates, which represents a small premium over peer table-service restaurant companies such as Brinker International, Inc. (NYSE:EAT) and Darden Restaurants, Inc. (NYSE:DRI); these two stocks carry forward P/Es of 11 and 12, respectively. Alternatively, DineEquity trades even with McDonald’s Corporation (NYSE:MCD) on a forward earnings basis even though that company has a much stronger brand and quick service restaurants are expected to see better growth in the next several years. As a result we’d consider any of those three stocks better buys. Read more analysis of DineEquity.
Coliseum Capital Management, which had already been a major investor in $340 million market cap home health care provider LHC Group, Inc. (NASDAQ:LHCG), added about 100,000 shares to its position in the company in late November. LHC had been Coliseum’s largest 13F holding by market value at the end of the third quarter, with 2.2 million shares; it’s now getting close to 2.4 million, and co-manager Christopher Shackelton has joined LHC’s Board of Directors. See more of Coliseum’s favorite stocks. LHC trades at 13 times earnings, and we think that the industry has good growth potential thanks to demographics.
