Two Activist Plays And Two Biotech Moves You Should Check Out

With hedge funds having submitted their 13F filings for the third quarter, people at Insider Monkey are busy compiling the data necessary to identify the best investment opportunities in small-cap stocks and share various other investment trends with readers. While waiting for the next issue of our newsletter, let’s have a look at some fresh moves from Eric Semler, William C. Martin and Peter Kolchinsky and see if the stocks they like could also make for good investments.

We don’t just track the latest moves of hedge funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research which showed that these 15 most popular small-cap picks have great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests, and easily beating the most popular large-cap picks of funds, which nonetheless get the majority of their collective capital. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic only the very best ideas of the best fund managers on your own? Since the beginning of forward testing in August 2012, the Insider Monkey small-cap strategy has outperformed the market every year, returning 102%, nearly 2.1 times greater returns than the S&P 500 during the same period (see more details).

Eric Semler is waging a war against Time Warner Inc (NYSE:TWX), blaming the media giant for the poor performance of Central European Media Enterprises Ltd. (NASDAQ:CETV)‘s stock and urging its Board to look for a potential buyer. In a letter sent to CEME’s board of directors, Semler states that the stock’s poor performance is severely affected by Time Warner’s effective control of the company and the majority of its debt. He also expressed his discontent with the exorbitant interest payments Time Warner is extracting from the company, in some cases as much as 15%. Semler and his team believe the only viable option is for the management of Central European Media Enterprises Ltd. (NASDAQ:CETV) to pursue a sale of the company. His fund, TCS Capital Management, has also issued an amended filing, revealing the increase in its holding of the stock to 14.7 million shares, the equivalent of 10.9% of outstanding shares.

Although only eight hedge funds reported a stake in Central European Media Enterprises Ltd. (NASDAQ:CETV) as of the end of the third quarter, together they held roughly 19% of its common stock. Simon Sadler joined the shareholder party during the quarter, initiating a stake that amounted to 1.84 million shares by the end of September. Rob Citrone is also keeping tabs on the stock, as his fund, Discovery Capital Management, reported ownership of 4.69 million shares valued at $10.1 million in its latest 13F filing.

A vehement opponent of Mellanox Technologies, Ltd. (NASDAQ:MLNX)’s takeover bid for EZchip Semiconductor Ltd (NASDAQ:EZCH), William C. Martin has issued a statement following the company’s decision to postpone a shareholder vote on the deal. The management of EZchip announced the delay on November 12, the day of the vote, having amended the initial agreement with Mellanox to include a “Go Shop” clause that will allow the company to seek other potential buyers for 30 days.

“We believe EZchip did not obtain the requisite vote to approve the sale to Mellanox at $25.50 per share and that a significant number of shareholders agreed that the offer drastically undervalued EZchip and its future prospects. It is disappointing that EZchip decided not to count these votes, and instead, announced a postponement which we believe was solely intended to circumvent the will of the stockholders.”

“While we believe EZchip should not have entered into the contract with Mellanox to begin with, now that they have belatedly agreed to a Go Shop process, we intend to hold the Board and management accountable if this process is not conducted in a manner that gives other interested parties a full and fair opportunity to make superior proposals,” said Martin in a press release.

Martin and his fund, Raging Capital Management, have also offered an update on their holding of EZchip Semiconductor Ltd (NASDAQ:EZCH)’s stock. The fund now holds 2.17 million shares or 7.2% of common stock, which makes it the largest shareholder. Jim Simons decided to step up his interest in the company, increasing his stake by 2% over the third quarter. In its latest 13F filing, Renaissance Technologies reported ownership of 281,900 shares valued at $7.09 million. In general, EZchip Semiconductor Ltd (NASDAQ:EZCH) does not enjoy a high level of attention from the hedge funds that we monitor, with only ten of them holding roughly 11% of the company’s outstanding stock at the end of September.

Turn to the next page to find out what Peter Kolchinsky has been up to lately.

Biotech wiz Peter Kolchinsky has also revealed two recent moves. According to a filing with the Securities and Exchange Commission, he has boosted his investment in Alcobra Ltd (NASDAQ:ADHD) to 3.03 million shares from the previous holding of 1.66 million shares. As a result, RA Capital Management has control over 11.1% of the company’s outstanding shares. The stock is currently trading at $6.19, up by 64% so far this year.

Hedge funds in our database have an overwhelming presence among the shareholders of Alcobra Ltd (NASDAQ:ADHD), together controlling 58% of its shares outstanding at the end of the third quarter. The number of funds invested in the company increased to 14 on September 30, from 12 at the end of June. On the other hand, Kevin Kotler, another biotech expert, decided to reduce his exposure to Alcobra Ltd (NASDAQ:ADHD) during the third quarter, cutting his stake to 1.55 million shares. Jeffrey Jay and David Kroin, the managers of Great Point Partners, think Alcobra still has room to grow and have upped their stake in the company to a little over 1.2 million shares valued at $7.28 million.

In a recent Form 4 filing with the SEC, RA Capital Management has also disclosed an increase to its holding of Wave Life Sciences Ltd (NASDAQ:WVE), to 7.08 million shares. Roughly 1.87 million shares were acquired on the open market for an average price of $16.00 apiece, while a further 1.17 million shares were converted from Series B preferred stock to ordinary stock, on a one-to-one basis. Wave Life Sciences went public on November 11 in an IPO priced at $16.00 per share, raising a little over $100 million. RA Capital is the first among the hedge funds we follow that has reported a stake in Wave Life Sciences Ltd (NASDAQ:WVE).

Disclosure: None