Federal funds future contracts suggest a 79% probability that the Federal Reserve will raise interest rates at the December policy meeting, an event which is expected to halt the U.S equities lengthy bull-run. Assuming this is the case, it is highly likely that hedge fund investors will prove their stock picking abilities once again, as they are widely-known for their ability to identify over and under-priced investments and deliver strong performance amid slow-moving markets. Leaving the discussion about hedge funds’ stock picking skills aside, this article will examine three filings submitted by several top hedge funds that will offer up-to-date insights about these investors’ stances on some of their favored stocks.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
According to a 13G filed with the SEC, Chase Coleman’s Tiger Global Management owns 5.0 million American Depositary Shares of Autohome Inc. (ADR) (NYSE:ATHM), which can be exchanged for Class A ordinary shares at a ratio of one-to-one. This compares with the stake of 8.74 million ADSs reported during the latest round of 13F filings. The freshly-disclosed stake accounts for 9.9% of the company’s outstanding common stock. The Chinese auto information website has seen its stock decline by 14% this year, partially owing to increased concerns over China’s macroeconomic conditions. Autohome Inc. (ADR) (NYSE:ATHM) primarily generates its revenue from online ads and dealer subscription services, and has been successful in delivering substantial revenue growth so far, but investors might have had far greater expectations. Its net revenue for the third quarter reached $141.4 million, an increase of 64.9% year-over-year and exceeded the company’s guidance of $133.7 million-to-$139.1 million. China has been the world’s largest new-automobile market by sales volume for several years and is anticipated to become the largest electric car market this year, which might result in sustained revenue growth for Autohome.
Nevertheless, shares of Autohome are currently trading at a forward price-to-earnings ratio of 18.69, which is above the average of 17.44 for the companies contained in the S&P 500 Index. Hedge funds in our database were fleeing the stock during the third quarter, as the number of smart money investors with positions in the company halved to 12 quarter-over-quarter. Similarly, the value of their positions shrank to $419.53 million from $640.06 million during the three-month period. Rob Citrone’s Discovery Capital Management bucked that trend, purchasing a 766,000-share stake in Autohome Inc. (ADR) (NYSE:ATHM) during the third quarter.
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Let’s head to the next page of this article, where we reveal fresh moves of Carl Icahn and James Flynn on two different companies.
As stated by a recently-amended 13D filing, Carl Icahn’s Icahn Enterprises L.P. was informed by Pep Boys-Manny Moe and Jack (NYSE:PBY) that Icahn’s proposal to buy the remaining outstanding shares of the company for $15.50 per share in cash represents a “Superior Proposal”; hence, Pep Boys might terminate the merger agreement sealed with a subsidiary of Bridgestone Americas unless Bridgestone offers a higher price by December 11. In late October, Pep Boys-Manny Moe and Jack (NYSE:PBY) announced the aforementioned merger agreement with a subsidiary of Bridgestone, for $15.00 per share in cash. Let us remind you that Icahn Enterprises’ initial 13D filing on the automotive aftermarket services and retail chain disclosed an ownership stake of 6.56 million shares of the company, which accounted for 12.12% of its outstanding common stock.
The number of smart money investors with stakes in Pep Boys increased to 18 from 16 during the July-to-September period, while the overall value of those stakes climbed to $147.24 million from $119.33 million. At the same time, these 18 top money managers had accumulated 22.40% of the company’s outstanding common stock by the end of September. Steven Boyd’s Armistice Capital added an 840,000-share position in Pep Boys-Manny Moe and Jack (NYSE:PBY) to its portfolio during the latest quarter.
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In a Form 4 filing, James E. Flynn’s Deerfield Management reported purchasing 136,124 shares of Alimera Sciences Inc. (NASDAQ:ALIM) since Friday, at prices ranging betweem $2.99-to-$3.05 per share, boosting its overall holding to 4.76 million shares. The shares of the pharmaceutical company that focuses on the development of prescription ophthalmic pharmaceuticals are 44% in the red this year. The company has only one marketable product at the moment, which is designed to treat macular edema (a disease of the retina that affects individuals with diabetes). ILUVIEN was launched in Germany and the U.K during the second quarter of 2013, and in Portugal and the United States at the beginning of this year. The broadened market reach is already reflected in Alimera Sciences Inc. (NASDAQ:ALIM)’s revenue growth this year, as its third quarter net revenue increased by 188% year-over-year to $6.9 million.
The smart money sentiment towards the stock did not change significantly during the third quarter, as the number of hedge funds from our database with positions in the company declined to ten from 11 during the period. These investment vehicles owned 36.00% of the company’s shares on September 30, despite the total value of their positions declining to $35.34 million from $72.71 million quarter-over-quarter. William Leland Edwards’ Palo Alto Investors held its stake in Alimera Sciences Inc. (NASDAQ:ALIM) unchanged during the September quarter, at 3.01 million shares.
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