By Matt Doiron
We track filings from hedge funds and notable investors and use them for a few different purposes. By aggregating 13G filings, we can develop investment strategies including imitating hedge funds' most popular stocks in various categories. The most popular small cap stocks among hedge funds stand out in particular; these stocks among outperformed the S&P 500 by 18 percentage points per year between 1999 and 2009 (read the details). We can also use individual 13Fs, or 13D and 13G filings which are made public shortly after a fund takes or changes a large percentage stake in a company, as free stock picks which can then be evaluated further so that investors can decide whether or not they might be good buys. Here are five stocks that hedge funds have just bought:
Marcato Capital Management, a hedge fund managed by former Pershing Square employee Richard McGuire, reported a 5.2% stake in auto parts company Lear (LEA). It appears that all 5 million shares were purchased since the beginning of October. Lear's pretax income doubled in the fourth quarter of 2012 versus a year earlier, primarily due to higher gross margins but also thanks to a slight increase in sales. The stock trades at 11 times expected earnings for 2013, and we think that it may be worth considering alongside other cheap auto related companies.
Billionaire Ken Fisher's Fisher Asset Management now owns 2.2 million shares of Veeco Instruments (VECO) per a recent filing, giving the fund 5.6% of the total shares outstanding (see more of Fisher's stock picks). Veeco provides equipment to manufacturers of electronic equipment such as LEDs, and has a market capitalization of $1.2 billion. The third quarter of 2012 shows a sharp decline in business from the same period in 2011, with revenue and earnings down by 50 to 65 percent. The trailing P/E multiple is 19, so Fisher and other bulls are dependent on this trend not only reversing but also resulting in decent growth rates.
Citadel Investment Group, managed by billionaire Ken Griffin, disclosed the equivalent of ownership of 6.2% of Trina Solar (TSL) (check out more stocks Griffin likes). Trina manufactures modules for solar power companies, and is based in China- providing two red flags for many investors. The stock is down 47% in the last year, roughly matching the decline in revenue that the company reported in the third quarter of 2012 from its levels in Q3 2011. Trina is also sharply unprofitable and we'd consider it a quite speculative investment by the Citadel team.
Fellow billionaire Glenn Dubin's Highbridge Capital Management owns 8% of Penn Virginia (PVA), an independent oil and gas exploration and production company. Penn Virginia is unprofitable on a trailing basis, and experienced a decline in revenue in its most recent quarter compared to the same period in the previous year. 15% of the outstanding shares were held short as of the most recent data. We would note that while Penn Virginia has negative earnings it's arguably fairly valued in terms of cash flow, with an EV/EBITDA multiple of 4.5x.
Steiner Leisure (STNR), a spa and beauty care products and services company, had Diamond Hill Capital Management report ownership of about 770,000 shares of the stock; Diamond Hill is managed by Ric Dillon. While Steiner's revenue has been up, when we looked at the company it appeared to us that most if not all of that top-line growth was the result of acquisitions. As a result, even though Steiner does return considerable cash to shareholders through buybacks and its earnings multiples are low (the current price is 12 times consensus earnings for 2013) we'd be wary of considering it a value stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.