Shortly after taking a 5% position in a stock or making a significant change to a large position, hedge funds and other institutions are required to publicly disclose the ownership of the stock. This results in a way to track what particular investors think about particular stocks on a relatively up-to-date basis, with the catch being that generally (though not always, as we shall see) the 5% threshold is only ever reached in small-cap and mid-cap stocks. It is, of course, important to think critically about these companies before imitating any investor’s move. Here are four stocks that hedge funds and other notable investors have been buying recently:
Billionaire activist investor Carl Icahn has been doing more than beating up on poor Bill Ackman. Earlier this month, we had reported on news that his group was buying a significant number of shares in Transocean LTD (NYSE:RIG), the contract driller associated with the Deepwater Horizon disaster. Read our previous article on Transocean. Now he has reported a position of over 20 million shares, or 5.6% of the company. This is an enormous buy for Icahn; Transocean has a market capitalization of over $20 billion, meaning that he controls over $1 billion in stock (making this one of his largest positions). Compare his $1 billion in Transocean to other holdings. Wall Street analysts believe there is opportunity at Transocean, with a 2013 P/E of 12 and a five-year PEG ratio of 0.7. Icahn has announced that he will push for Transocean to pay a special dividend of $4/share; the company most recently reported $6 billion in cash and $14 billion in debt on its balance sheet.
Horizon Kinetics was buying a shopping mall owner as well:
Horizon Kinetics has also been adding shares of Rouse Properties Inc (NYSE:RSE), a real estate investment trust that owns shopping malls in the United States. The company has been struggling, with both funds from operations and core funds from operations (alternative financial metrics to earnings that are common when analyzing REITs) down in the third quarter of 2012 versus a year earlier. There is also considerable short interest in Rouse. In addition, unlike at many other REITs, the dividend yield is fairly low at 1.5% based on recent payments and the current share price. We think that investors may be better advised to consider other shopping mall companies.
Gates Capital Management (research more stocks the fund likes) now owns 6 million shares of Starz (NASDAQ:STRZA) or 5.4% of the total shares outstanding, according to a 13G filed with the SEC. Our database of 13F filings shows that Gates had not owned any shares of the stock at the end of September. Starz was spun out from Liberty Media Corp (NASDAQ:LMCA) earlier this month. Hedge funds often like to invest in spinouts because the management of the new company can better focus on improving the business without having to stay in line with a larger company’s strategic decisions (read more about spinouts). In particular Starz may end up an acquisition target. It currently trades at 9 times consensus earnings for 2013.
Disclosure: I own no shares of any stocks mentioned in this article.
