By Eric Winter
Each quarter, hedge funds are required by the SEC to disclose many of their positions across different asset classes in a filing known as a 13F. Similar to past quarters, we have analyzed the holdings of 400+ funds to glean information from these major investors and Wall Street heavyweights. We have found that the most popular small-cap stocks amongst top hedge funds have earned 29% since last September alone (learn more about the strategy here). Goldman Sachs alum Noam Gottesman had roughly $2bn in the fund's (known as GLG Partners) 13F portfolio. Read on to see our take on his five largest new positions formed last quarter.
Qualcomm Incorporated (QCOM) was GLG's largest new play, coaxing a roughly $45 million investment out of the firm. The position came in the form of a put option, which bets on a stock's likelihood to depreciate. The telecommunications company recently faced downgrades to Hold from bulge brackets Goldman Sachs and JPMorgan; Goldman Sachs kept its price target for QCOM at the $80 mark though, representing a possible 20% growth from current trading levels. QCOM announced this week that it is shunning its previous $4bn buyback program to be replaced by a $5bn one. Billionaire Israel Englander of Millennium Management may be seeing a decline in QCOM's future as well, as he reduced his position last quarter by 34%.
Warner Chilcott Plc (WCRX) is a $3.4bn pharmaceutical company that focuses on women's health, developing offerings that include contraceptive and hormone therapy drugs. WCRX has seen significant earnings beats in the past four quarters, roughly 25% greater than analyst's expectations. This performance has not translated into a higher PPS however, with the stock losing almost 22% in the past twelve months. Although Wall Street is largely bullish on WCRX, some research firms are citing inexpensive generics on the market and looming losses of patents as reasons to be wary of WCRX. GLG Partners bet $28 million on WCRX.
Discover Financial Services (DFS) received an allocation of about $16 million from the hedge fund. The payment processor and banking services company has been an excellent performer stretching back a year, earning 36% for investors. Earlier this week, DFS received an upgrade to Outperform by William Blair - the analyst who issued the upgrade believes the current P/E multiple of 9 is not reflective of the company's value and should be closer to the 13 range. DFS is due to report earnings on the twentieth of this month with an estimated EPS of $1.08. Billionaire James Dinan of York Capital Management initiated a roughly equivalent position to GLG's last quarter.
The Goldman Sachs Group (GS) was a $15 million purchase by Gottesman, made during a time when many hedge funds were actually dumping their GS positions. In Q3 2012, 59 funds were invested in the investment bank; that number dropped to 46 in Q4 2012. Despite continually blowing out earnings last year as GS is known to do, the start of this year brought on downgrades from Deutsche Bank, Citi, and Sandler O'Niell. The company recently began a round of job cuts, which is typical for the firm this time of year. Daniel S. Och of OZ Management cut his equity position but added to his put position in the same quarter.
Plains Exploration & Production Company (PXP) entered GLG's portfolio as a call option position amounting to $13 million. PXP operates on the upstream side of the oil and gas business. The company struggled with earnings through most of 2012, finding difficulty in meeting analyst EPS predictions and earning a host of downgrades since the start of this year. PXP is still facing a rocky road of approval on its way to being purchased by Freeport McMoRan Copper & Gold (NYSE:FCX), a deal that was announced last December and is expected to close towards summer 2013. Famed billionaire George Soros of Soros Fund Management purchased over 950,000 shares in Q4 2012 (view his positions here).