By Matt Doiron
The most comprehensive information on hedge fund holdings comes in the form of quarterly 13F filings, making them a useful source of data; for example, we have found that the most popular small-cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about imitating hedge funds' small-cap picks). This information is a bit old by now, however (the most recent filings show holdings as of the beginning of January). Hedge funds and other major investors are also required to issue 13D or 13G filings shortly after acquiring 5% of the outstanding shares of a company's stock. These filings can therefore serve as a source of initial ideas for further research. Here are five stocks which hedge funds have bought recently:
Billionaire Steve Cohen's SAC Capital Advisors has taken a 5% stake in OpenTable (OPEN) (see Cohen's favorite stocks). The restaurant reservations service reported that revenue grew 16% last year compared to 2011, with earnings rising 11%. However, the stock is currently priced for much faster growth: for example, the forward P/E is 25 and even that figure is based on the assumption of net income increasing at the same rate or even higher than in recent times. The most recent data shows that 24% of OpenTable's float is held short, and given the pricing we would avoid the stock.
Eminence Capital, which is managed by Ricky Sandler, was quite successful in 2012 in terms of its returns. Now Sandler and his team have disclosed ownership of 1.7 million shares of Asbury Automotive (ABG) after not having owned any of the stock at the beginning of this year (check out Eminence's stock picks from its 13F). Asbury is a dealer of new and used cars with a market capitalization of $1.2 billion, and at that price it's close to value territory at 13 times its trailing earnings. Growth numbers have been good and we think the company is worthy of further research, though the same could also be said for some of its peers.
Activist investor Barry Rosenstein's JANA Partners is planning to push Oil States International (OIS) into splitting up its business segments and has bought over 9% of the company as part of its campaign. The stock price rose strongly on the news of JANA's involvement; investors had already been speculating that Oil States' temporary housing unit could be spun out as a real estate investment trust at a higher valuation than the whole company's current market cap. The oil and gas equipment and services company's earnings were down 24% in Q1 2013 versus a year earlier, though analysts had been expecting Oil States to recover.
Another recent activist move in the market has been Starboard Value, a fund managed by Jeffrey Smith, buying up nearly 13 million shares of TriQuint Semiconductor (TQNT). TriQuint is a $940 million market cap (with over 2.5 million shares traded per day on average) semiconductor company which is best known as an Apple supplier. Sales have been down recently, and the business is actually unprofitable on a trailing basis with analyst consensus being that TriQuint will also finish this year in the red before improving in 2014. We wouldn't want to rely too strongly on their optimism and so we wouldn't be buying here.
Recent IPO Sea World (SEAS) has had Scout Capital Management report ownership of 8% of the theme park company's outstanding shares. While the $3.1 billion market cap company is best known for its Sea World parks, it also owns the Busch Gardens brand and some water parks across the eastern U.S. Financial data shows that the stock is priced fairly expensively: the trailing P/E multiple is 35, and even on a cash flow basis (Sea World was taken public by private equity fund Blackstone) the valuation isn't too attractive with an EV/EBITDA multiple of more than 12.