Starboard Value, which is managed by Jeffrey Smith, increased its holdings of Regis Corporation (NYSE:RGS) to a total of 4.2 million shares. The operator and franchisor of hair salons had already been one of Starboard’s five largest holdings by market value at the beginning of October (find more of Starboard’s favorite stocks). The fund now owns about 7% of the company’s outstanding shares. Regis trades at 21 times forward earnings estimates, and in its most recent quarter revenue was actually down compared to the same period in the previous year; operating income was about flat. In addition, while Starboard appears optimistic there is considerable short interest suggesting that a number of traders consider Regis overvalued. We don’t think that it’s a good buy. See more of our analysis of Regis.
Billionaire Ken Griffin’s Citadel Investment Group reported owning 5.4 million shares of homebuilder KB Home (NYSE:KBH). Read about Citadel’s investment in KB Home. The company grew its revenue 19% in its last fiscal year (which ended in November 2012) compared to the previous one; the bottom line also improved, though KB Home remained unprofitable. Given its losses, there would have to be continued improvement in the housing market for KB Home to look anything like a value stock and it might be better to consider peers such as Lennar Corporation (NYSE:LEN) and D.R. Horton, Inc. (NYSE:DHI).
Oil and gas exploration and production company Penn Virginia Corporation (NYSE:PVA) was another stock Griffin and his team liked, as Citadel disclosed a large position there as well (check out more of Griffin’s stock picks). The company’s production mix is about half natural gas (down from two thirds a year ago) with the rest being oil and natural gas liquids. As a result revenue was only down 8% as rising oil prices partially offset cheaper natural gas. However, Wall Street analysts expect Penn Virginia to be unprofitable both this year and next year and so we’d avoid it.
A 13D filed with the SEC has disclosed that Steelhead Partners, a hedge fund managed by Michael Johnston (see his latest stock picks), owns 5.3 million shares of oil and gas exploration and production company Endeavour International Corporation (NYSE:END). The fund had initiated a position in Endeavour during the third quarter in the year and owned a little over 4 million shares at the end of September; its most recent purchases have given it 12% of the shares outstanding. Endeavour’s market cap of $240 million (an average of over 700,000 shares are traded daily) means that it is priced at 7 times consensus earnings for 2013. The company is unprofitable on a trailing basis, but revenue is up strongly and it’s worth seeing if its fields are just coming on line- that would be a cheap price for a fast growing producer.
Two hedge funds- Visium Asset Management and Baker Brothers Advisors– reported large stakes in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). The biotechnology company’s market capitalization is only about $260 million, but an average of over 3 million shares have been traded daily and the current market price is $4.50; this means over $10 million in daily dollar volume. The stock is up nearly 300% in the last year as it has been picking up sales, though as a development stage company it remains unprofitable.
