By Matt Doiron
We like to track hedge fund filings because even though hedge fund managers are buying so many stocks that an investor can't copy them in every case, the views of these investors are still useful in identifying companies or industries for further research. As such, filings can act similarly to a screen. 13D and 13G filings are issued fairly closely to when a fund makes a transaction, and so serve as a fairly up-to-date picture of a specific manager's view on a specific stock. The downside is that a fund generally must own 5% or more of the outstanding shares in order to be required to file, so it's rare to see a larger-cap stock in a filing; of course, mid-cap and small-cap stocks are arguably where it's most useful to have the input of these managers and their investment teams. Here are some stocks that hedge funds have been buying recently:
Billionaire Steve Cohen's SAC Capital Advisors reported ownership of 1.6 million shares of ArthroCare Corporation [(NASDAQ:ARTC), a medical device company. SAC's 13F filing for the third quarter showed the fund owning about 400,000 shares at the end of September (check out Cohen's latest stock picks). ArthroCare's business appears to be steady, with an increase in earnings in its most recent quarter primarily due to lower special charges than in the third quarter of 2011, and the stock trades at 22 times forward earnings estimates. When we had looked at the company compared to its peers, we had decided that larger medical device companies like Medtronic (NYSE:MDT) and Stryker Corporation (NYSE:SYK) looked like better buys (see our analysis of ArthroCare and its peers).
Citadel Investment Group, managed by billionaire Ken Griffin, had owned almost 9 million shares of Halcon Resources Corp (NYSE:HK) at the end of the third quarter (find Ken Griffin's favorite stocks) and bought more shares over the next two months, recently owning just over 11 million shares. Halcon is an oil and gas company and has been experiencing dramatic increases in production over the last year, resulting in a large rise in revenue. Operating income is down, at least for now, as the increased production as also resulted in higher costs. We'd note that several insiders bought the stock in November, and studies show that on average insider purchases- particularly when a consensus of insiders buy- are good signs for a stock. Still, we'd hesitate to buy Halcon rather than more mature oil and gas companies.
Steadfast Capital Management reported owning 30 million shares of Chinese social networking software company YY Inc. (NASDAQ:YY), a recent IPO which focuses on serving gamers, performing artists, and their fans. YY is barely profitable but has been reporting rapid growth; still, the company has a slew of peers which are out of favor with the markets. Not only are companies related to Chinese gaming trading at very low multiples, but American social networking and social gaming stocks such as Facebook Inc (NASDAQ:FB) and Zynga Inc (NASDAQ:ZNGA) have been having a terrible year. We just don't see how an even more speculative stock is a better buy than would be found in either of those categories.
Healthcare-focused fund Ayer Capital Management, which is managed by Jay Venkatesen, bought 3.7 million shares of Peregrine Pharmaceuticals (NASDAQ:PPHM), a $130 million market cap biotechnology company. Peregrine's daily trading volume is about 8 million shares (and its current price is about $1.30 per share) so there is sufficient liquidity for investors despite its small market cap. Peregrine isn't expected to be profitable in either the current fiscal year (which ends in April 2013) or in the fiscal year after that, and its revenue fell 25% in its most recent quarter compared to the same period in the previous year. We would avoid this stock as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article is written by Insider Monkey's writer, Matt Doiron, and edited by Meena Krishnamsetty. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.