Christian Leone‘s Luxor Capital Group is an investment advisory firm with an estimated $11.5 billion in assets under management. The fund was founded in 2002 and boasts a diversified portfolio of global investments. The hedge fund is known for its value-based strategy in selecting its stocks. In addition, the fund is also known for its interest in distressed companies whose value can be unlocked so as to reposition them into becoming profitable companies and investments. The fund’s latest 13F filing showed that it had a public equity portfolio value of $6.19 billion, representing a $1.23 billion increase over the end of 2014 reporting period. While the fund had stakes in a variety of sectors, this article focuses on its top tech picks, which are Yahoo! Inc. (NASDAQ:YHOO), IAC/InterActiveCorp (NASDAQ:IACI), and Baidu Inc (ADR) (NASDAQ:BIDU).
We follow hedge funds like Luxor Capital Group because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 142%, outperforming the S&P 500 ETF by nearly 84 percentage points (see more details here).
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With that in mind, let’s first consider Yahoo! Inc. (NASDAQ:YHOO), which is one of the most popular stocks in our database. At the end of the first quarter of 2015, Luxor Capital Group held a total of 10.64 million shares of the company with a market value of $472.59 million, representing an increase of 1.42 million shares compared to the previous quarter. The Sunnyvale, California-based multinational company mainly provides web-based services, including search engine, web portal, and microblogging. Yahoo! Inc. (NASDAQ:YHOO) has been facing fierce competition from other online giants such as Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) for online and mobile ad revenue, and has entered the fray ready to fight. Towards that objective, the company undertook a far-reaching restructuring of its top management and has recently gone into an acquisition spree to reposition itself among the top tech companies. Among other activities, the company is set to spin-off its Alibaba Group Holding Ltd (NYSE:BABA) stake and is also under pressure from activist investor Jeffrey Smith to spin-off its stake in Yahoo! Japan.
In terms of performance, Yahoo! Inc reported earnings per share of $0.70 for the quarter ended March 31, meeting Wall Street analysts’ estimates. Looking ahead, 27 analysts have given the stock a “Buy” recommendation, although the stock’s expected earnings per share is only $0.50 for the current quarter. A total of 104 hedge funds out of the more than 700 we track had stakes in the stock at the end of the first quarter. The hedge funds had aggregate holdings of $6.48 billion. Some of these shareholders were billionaire Daniel S. Och‘s OZ Management, D. E. Shaw, founded by billionaire billionaire D. E. Shaw, and Jeffrey Altman‘s Owl Creek Asset Management.
The first quarter of 2015 saw Luxor Capital Group reduce its stake in IAC/InterActiveCorp (NASDAQ:IACI) to 2.69 million shares valued at $181.18 million from 3.53 million shares it held at the end of the fourth quarter of 2014. The media and internet company is known to own over 150 brands and products, including media, search and applications, e-commerce, and more. It is the owner of the famous About.com, Ask.com, and Dictionary.com websites, as well as the match.com online dating service, the largest in the world. The stock’s performance for the first quarter of 2015 beat analysts’ consensus estimate, posting $0.43 in earnings per share compared to the $0.35 expected by analysts. Its revenue for the period was $772.50 million also slightly beating analysts’ forecast of $772.25 million. IAC/InterActiveCorp (NASDAQ:IACI) posted $0.59 in earnings per share for the same quarter last year. 18 brokerages have given it a “Hold” recommendation. At the end of the quarter ending March 31, a total of 55 hedge funds in our database had stakes in the stock, with their holdings amounting to an aggregate value of $1.66 billion. Some of these funds are David Einhorn‘s Greenlight Capital, Dan Loeb’s Third Point, and Eric Bannasch’s Cadian Capital.
Another of Luxor Capital Group’s top tech picks is in Chinese internet company, Baidu Inc (ADR) (NASDAQ:BIDU), in which the fund held 355,470 shares with a market value of $74.08 million at the end of the first quarter, having upped its stake by 248% over the period. Baidu Inc (ADR) (NASDAQ:BIDU) has established itself in China as a top search engine, and the company’s results for the quarter ended March 31 show that its mobile segment registered great improvement, contributing up to 50% of its total revenue, up from 42% in the fourth quarter of 2014. The growth in mobile phone subscriptions in China is a good opportunity for the company to expand its mobile segment. Currently, Baidu Inc is in a partnership with BMW to produce a self-driving car, which is expected to be launched before the end of the year. The stock has been given an “Overweight” rating by researchers at KeyBanc and a price target of $255.00, meaning an expected upside of 21%. Analysts expect the stock to post earnings per share of $42.91 for the current fiscal year. A total of 75 investors that we tracked during the first quarter held positions in the stock, with 17 of them being billionaires, making it one of the most popular among that wealthy group of investors. Some of these hedge funds are billionaire Stephen Mandel‘s Lone Pine Capital, Philippe Laffont’s Coatue Management, and billionaire Andreas Halvorsen’s Viking Global.
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