What Do Hedge Funds Have To Say About These 3 Purchases?

Most hedge funds and other money managers tracked by Insider Monkey have not submitted their 13F filings for the September quarter just yet. These public filings will surely disclose attractive and attention-grabbing stock picks, but it might take a few more days until market participants will get the chance to take a look at them (the deadline is November 15 for the current filing period). In the meantime, several hedge funds have been revealing 13G, 13D, and Form 4 filings regarding some of their positions, which usually disclose up-to-date insights about their major stances on different companies. So let’s proceed with a discussion on three such moves made by elite hedge funds tracked by our team.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last 37 months (see the details here).

In a Schedule 13G filing with the U.S. Securities and Exchange Commission, Kevin Kotler’s Broadfin Capital disclosed owning 1.81 million shares of Aratana Therapeutics Inc. (NASDAQ:PETX), which represent 5.17% of the company’s outstanding common stock. This denotes a lift of exactly 678,000 shares from Broadfin’s position disclosed through its 13F filing for the second quarter. The shares of the pet therapeutics company plummeted in September, after it disclosed disappointing clinical trial results. Specifically, Aratana Therapeutics Inc. (NASDAQ:PETX)’s management acknowledged that two of its product candidates will not reach the desired and previously-anticipated lymphoma market opportunity for canines. Partially due to that, the stock is down by 55% year-to-date.

The hedge fund sentiment towards the company did not change significantly during the second quarter, as the number of hedge funds invested in the stock increased to 13 from 12 quarter-over-quarter. These top money managers stockpiled approximately 15% of the company’s shares on June 30. At the same time, the value of their stakes in Aratana increased to $78.34 million from $52.78 million during the three-month period. Healthcare-focused Sio Capital, led by Michael Castor held a 404,738-share stake in Aratana Therapeutics Inc. (NASDAQ:PETX) at the end of the June quarter (read more details).

Let’s move on to the next page of the article, where we disclose the moves made by Carlson Capital and JANA Partners.

According to a freshly-submitted Form 4 filing, Clint Carlson’s Carlson Capital recently acquired an 87,935-share block in Ultratech Inc. (NASDAQ:UTEK) at a weighted average price of $15.66. Consequently, Carlson Capital currently holds an ownership stake in the manufacturer of photolithography and laser processing equipment amounting to 3.45 million shares. Last week, the Dallas-based investment firm acquired an additional 33,028 shares at prices ranging from $14.94-to-$14.99, so the firm has been gradually piling up more shares of the seemingly struggling company. Ultratech Inc. (NASDAQ:UTEK)’s stock has lost 13% since the beginning of the year and appears to be in a bottoming-out phase at the moment. Just recently, the company reported a third quarter GAAP net loss of $6.1 million on net sales of $33.1 million, compared to a net loss of $6.6 million on net sales of $33.8 million reported a year ago, so the company doesn’t appear to be improving its operational efficiency or enhancing sales.

11 hedge funds had the stock in their portfolios at the end of the second quarter, compared to 13 registered in the prior one. These hedge fund firms accumulated slightly over 22% of the company’s outstanding shares on June 30, with the value of their combined investment increasing to $113.12 million from $94.52 million quarter-over-quarter. Aside from Carlson Capital, Phill Gross and Robert Atchinson’s Adage Capital Management was also bullish on Ultratech Inc. (NASDAQ:UTEK) at the end of the second quarter, owning nearly 704,000 shares.

A separate Form 4 filing with the SEC disclosed that Barry Rosenstein’s JANA Partners currently owns slightly more than 13.75 million shares in Walgreens Boots Alliance Inc. (NASDAQ:WBA). The filing revealed that Rosenstein, who also serves as a Director of the pharmacy-led health and well-being company, received 2,243 shares as compensation under the company’s 2013 Omnibus Incentive Plan. On October 27, Walgreens Boots Alliance Inc. (NASDAQ:WBA) and Rite Aid Corporation (NYSE:RAD) announced a merger deal under which the former is set to acquire the shares of U.S retail pharmacy chain Rite Aid for $9.00 per share. The all-cash deal will most likely result in a drugstore giant with 12,600 U.S retail locations. In the meantime, the shares of Walgreens Boots Alliance have advanced by 15% since the start of the year, and seem to be fairly valued if looking at its trailing P/E ratio of 21.89. However, this measure does not take into account the future growth of the company, including the potential growth boost from the aforementioned deal.

The stock became quite popular among the hedge funds tracked by our team during the second quarter, as the number of top money managers invested in the company increased to 81 from 69. Similarly, the value of their stakes increased to $9.13 billion from $7.48 billion quarter-over-quarter. Andreas Halvorsen’s Viking Global was the top equity holder of Walgreens Boots Alliance Inc. (NASDAQ:WBA) within our database at the end of the June quarter, holding 24.63 million shares.

Disclosure: None