By Matt Doiron
Investors can stay on top of hedge fund activity partly by keeping track of 13D and 13G filings, which report significant percentage stakes in public companies. The nature of the filing requirements means that these filings are rare for large-cap companies, and very rare for mega-caps, but it's arguably more important to know how hedge funds are trading smaller-cap stocks since their investment teams are more likely to uncover a good value in less widely followed names. We have gone through recent filings and here are five stocks that hedge funds have bought recently:
Billionaire Stephen Mandel's Lone Pine Capital has reported a position of 7.2 million shares in Charter Communications (CHTR), up from about 330,000 shares at the end of September. Lone Pine now owns over 7% of the company's outstanding shares. See more of Mandel's stock picks. When we looked at Charter we didn't find its valuation particularly attractive; earnings multiples were low and the EBITDA multiple was higher than what could be found at similar companies. While the company has been recording revenue growth, net income has been low to negative.
Fellow billionaire Steve Cohen and his team at SAC Capital Advisors filed with the SEC to disclose ownership of 4.1 million shares of Energy XXI Limited (EXXI), an oil and gas exploration and production company (find Cohen's favorite stocks). Earnings were down sharply last quarter due to lower oil revenues (which caused total sales to be down slightly) and the resulting shift of the production mix towards natural gas, which in turn drove down operating margins. The stock trades at 12 times trailing earnings, which is a lower multiple than natural gas producers and emerging oil players but a substantial premium to most oil majors.
Passport Capital, a hedge fund managed by John Burbank, has joined the team of hedge funds who are bullish on Yelp Inc (YELP) by bringing its stake up to 1.1 million shares or over 6% of the company. Yelp is currently struggling to achieve profitability, with analyst consensus for 2013 being 2 cents of earnings per share. Over 60% of the outstanding shares of the company are held short as Passport and other hedge funds who have filed 13Gs for Yelp are opposed by a sizable bearish community who believe that competition from companies such as Facebook, as well as high operating costs, will prevent Yelp from achieving the earnings growth it needs to justify its current valuation. Read more about Burbank buying Yelp and our analysis of the company.
InterMune, Inc. (ITMN), a biotech company whose products in development focus on treatments for idiopathic pulmonary fibrosis, had Julian and Felix Baker's Baker Brothers report that it owned 3.3 million shares. While InterMune's market cap is only about $650 million, we would say that it has sufficient daily dollar volume on the basis of its stock price of almost $10 and its average daily volume of 1.7 million shares. 29% of the outstanding shares are held short as of the most recent data as some market players are impatient with the company- still in the development stage, losses of $3.02 per share are expected this year.
Glazer Capital has bought up over 250,000 shares of Kayak Software Corp (KYAK), which is scheduled to be acquired by Priceline. While Kayak trades at high earnings multiples (the current stock price, which of course is inflated by the acquisition premium, is 36 times consensus earnings for 2013), it and the rest of the travel website industry are growing rapidly and Priceline apparently believes that it is worth paying a premium to expand and increase its leadership position. The acquisition was announced about three months ago, though we're not certain that an investor would earn a competitive return from merger arbitrage at this point.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.