Six to seven weeks after the end of each quarter, hedge funds file 13Fs with the SEC to disclose many of their long equity positions as of the end of that quarter. Even with the inherent delay, it is still possible to use this information to develop investment strategies, as we have done in finding that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year. Still, many investors prefer more up-to-date, even if much less comprehensive, information on hedge fund moves. Funds file 13Ds or 13Gs relatively quickly after taking a 5% stake in a company (note that this generally limits coverage to small-cap and occasionally mid-cap stocks); here are five stocks that hedge funds have reported buying recently:
Billionaire Steve Cohen’s SAC Capital Advisors has increased its stake in coal producer Walter Energy, Inc. (NYSE:WLT) to a total of 3.3 million shares, roughly double what it owned at the beginning of January. Find Cohen’s favorite stocks from the end of Q4. Walter primarily produces metallurgical coal for steel companies, but also mines thermal coal and other minerals. Even after adding back a large goodwill impairment operating income came in much lower in 2012 than in 2011, as both segments of the coal industry suffer from weak demand.
Read on for one more stock Cohen liked, and two more seeing hedge fund purchases:
SAC has been quite busy in the past couple weeks, with yet another filing reporting 5% ownership of LogMeIn Inc (NASDAQ:LOGM), a remote access software company with a market capitalization of about $440 million (with an average of over 400,000 shares traded per day and a current price of over $17, there is plenty of dollar volume for most investors). The sell-side is expecting high growth at LogMeIn, but even their forecasts imply a forward P/E of 23 and in its most recent quarter net income only increased 9% compared to the same period in the previous year.
Steadfast Capital Management, managed by Robert Pitts, has gotten back into Yelp Inc (NYSE:YELP) after buying shares last fall but selling most of them by the end of December. It now owns 1.3 million shares of the business reviews website, giving it 5.4% of the total shares outstanding. Yelp grew its revenue by 65% in 2012 compared to 2011, but the company remained unprofitable. Current analyst expectations are that Yelp will also see net losses this year and earnings per share in 2014 will be quite low compared to the current market price. As such we don’t think that it is a good buy.
Mount Kellett Capital Management, which has been one of the leading activists in the battle for control of SandRidge Energy Inc. (NYSE:SD), had bought 3 million shares of the stock and now owns over 25 million shares. The fund and its associates have reached an agreement with the company to either replace controversial CEO Tom Ward or take majority control over the Board of Directors (and therefore exert more control over SandRidge). The natural gas producer is expected to be unprofitable this year ad next year as aggressive expansion has been met by low natural prices.
LogMeIn and Yelp don’t look like good values, with analyst expectations placing the stocks at very high valuations; investors should think twice before shorting, however, given the possibility of acquisition. SandRidge and Walter are falling short in terms of being profitable at all, and with both businesses dependent on commodity prices we would avoid them for now (in addition, we doubt that each is the best pick in its respective industry). Carter’s does look interesting but other apparel companies seem like better prospects.
Disclosure: I own no shares of any stocks mentioned in this article.
