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By Matt Doiron

Shortly after a hedge fund or other major investor takes a large percentage stake in the company or later makes changes to its position, it files a 13D or a 13G with the SEC. While these filings are certainly not as comprehensive as the quarterly 13F filings which we use to help us develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year), they do provide relatively up to date picks from individual hedge funds. Investors can consider each of these stock picks and decide whether or not they are in fact worthy of further research. Here are four stocks hedge funds have bought recently:

Billionaire Bill Ackman's Pershing Square Capital Management now owns about $2 billion worth of Air Products & Chemicals (APD), or about 10% of the industrial gases and materials company. Find Ackman's favorite stocks. According to the well-known activist investor, Air Products & Chemicals can increase shareholder value through a number of operational improvement which he plans to discuss with management. With rising costs offsetting an increase in sales, the business's net income decreased in its most recent quarter compared to the same period in the previous fiscal year and cash flow from operations has been down so far this year as well. At a trailing P/E of 23, about even with many of its peers, Air Products & Chemicals is quite dependent on future earnings growth and so Ackman would likely need to have a number of successful ideas in order to make money on the stock considering the current valuation.

SAC Capital Advisors, managed by billionaire Steve Cohen, has reported a position of nearly 11 million shares in Compuware (CPWR) or just over 5% of the company (see Cohen's stock picks). A $2.4 billion market cap enterprise software company, Compuware has been a frequent target of takeover speculation including from Elliott Management and peer BMC Software. At a forward P/E of 20, and with net income actually declining slightly according to recent reports on flat sales, there seems to be some probability of a deal already priced into the stock. Compuware recently began paying a quarterly dividend; its recent quarterly payment of 12.5 cents implies an annual yield of 4.5% at current prices and so it may be of interest to income investors.

Pinnacle Entertainment (PNK) has also seen hedge fund interest as Citadel Investment Group has increased its stake in the casino company to a total of 2.8 million shares; Citadel is managed by billionaire Ken Griffin. Casinos are generally trading at earnings multiples of more than 20 in the current environment, and Pinnacle is no exception with a valuation of 24 times consensus earnings for the current year. Compared to larger casinos, Pinnacle has less exposure to the Macau/China geography and so has been seeing less revenue growth recently. However, investors who are bearish on Chinese macro might therefore see it as lower risk than Las Vegas Sands or Wynn. We are wary about the high valuations in the industry, and given Pinnacle's recent declines in operating income we would avoid the stock.

Richard McGuire's Marcato Capital Management has reported a position equivalent to 6.6% of Sotheby's (BID), the auctioneer (much of this position was achieved by purchasing call options). Sotheby's is another stock which is priced well above pure value territory, at a forward P/E of 20; while Marcato's filing simply suggested that the stock was undervalued, it's possible that the investment team will push for operational changes at the company. Sotheby's reported higher net losses per share than analysts had been expecting in the first quarter of 2013, although its earnings do tend to be volatile on a quarterly basis.

Investing in any of these four stocks we've listed here would seem to require a good deal of confidence in management to grow earnings quite a bit over the next several years, or in activists such as Marcato and Pershing Square to push for changes in operations. We're not averse to industries such as industrial materials or auctions, but Air Products & Chemicals and Sotheby's seem a bit pricey at this point. Casinos in general are carrying high multiples, and we are skeptical that any companies in the industry are good values.

Source: 4 Stocks Top Hedge Funds Love Right Now