In this installment of my analysis of major purchases made by hedge funds, I will look at 5 stocks bought by the Tremblant Capital Group using the latest available SEC filings. Tremblant Capital Group is led by Brett Barakett and has equity positions worth $1.5 billion. In addition to estimating the price Barakett might have paid for the stocks, I have also calculated my preliminary price targets for the stocks using relative valuation to judge the attractiveness of these companies at current prices.
Sectors represented on the list include basic materials, technology, and services (restaurants, motion pictures and retail).
1) Air Products and Chemicals, Inc. (NYSE:APD)
APD is a $19 billion company by market capitalization and it provides atmospheric gases, process and specialty gases, and other services. The stock has been a decent performer during the last 5 years delivering a 25% return (not including dividends) compared to a decline of 10% in the broader markets. The company's projected long term earnings growth rate of 12.6% is double the growth rate of the previous 5 years.
Tremblant Capital Group initiated a position in APD by acquiring 257,674 shares at an estimated average price of $83.2 which is modestly below yesterday's closing price of $88 a share. Applying my estimated P/E of 15.2 to 2012 EPS of $6.77, my initial 12-month price target for APD is $103 a share. A return of 17% is possible from current levels.
2) Research in Motion Limited (RIMM)
RIMM has caused nothing but pain to its investors with the stock declining by 75% during the last year. Once a darling of the market (during the blackberry heydays), the company has experienced a rapid decline with Apple's (NASDAQ:AAPL) iPhone and other new entrants dominating the space. The company grew its earnings at a 32% rate during the last 5 years and is now expected to contract at an annual rate of 2.35%.
Tremblant Capital Group probably views RIMM as a deep value play with limited downside, but I tend to disagree with attractiveness of RIMM at these levels. Barakett bought 153,552 shares during the 3rd quarter and now owns a total of 2,023,857 shares of RIMM stock. Applying a P/E of 5 to 2012 average analyst EPS estimate of $2.95, my 12-month price target of $15 a share is obtained. The stock is slightly overvalued in my opinion.
3) Caribou Coffee Company, Inc. (NASDAQ:CBOU)
My favorite company on the list is also unfortunately the most overvalued firm on the list. CBOU operates 541 coffeehouses including 131 franchised locations. It competes directly with Starbucks (NASDAQ:SBUX) and usually receives very favorable reviews. The company is expected to grow its earnings at an annual rate of 13% during the next 5 years.
Tremblant Capital Group increased its position in CBOU by 20% by purchasing approximately 253,857 shares at an estimated average price of $13.9 a share. The stock currently trades at approximately $15 a share. My 12-month price target for CBOU is $12 a share obtained by applying a multiple of 23 to 2012 EPS estimate of $0.51. CBOU is significantly overvalued at current levels. The company has a 52 week low of $8.5. I would look to build a position in CBOU starting at $10 a share.
4) Pier 1 Imports, Inc. (NYSE:PIR)
PIR is a retailer of decorative home furnishings and gifts. This Fort Worth, Texas based company has a market cap of $1.6 billion and is expected to increase its earnings at an annual rate of 13% which is very similar to projected growth rate of the industry. Tremblant Capital Group increased its position in PIR by 48% by acquiring 1,518,364 shares at an estimated average price of $10.83 significantly below its current price of over $15 a share. My target of $17 implies an additional return of 10% from current levels.
5) IMAX Corporation (NYSE:IMAX)
IMAX designs, manufactures, and sells or leases IMAX theater systems. As of December 2010, the company had a total of 518 theatre systems operating in 46 countries. The company is also engaged in the movie production and distribution business.
Analysts expect good things from IMAX and project a 5 year annualized growth rate of 28%. Barakett more than doubled his position in IMAX by purchasing approximately 1.85 million shares at an estimated average price of $20 a share which is slightly below the current price of $21. Applying my P/E estimate of 24 to 2012 EPS estimate of $1.05 a share, my 12-month price target of $25 is obtained. A return of 19% is possible from current levels.
As always, please do not consider this list as a "buy" list, rather use this list as a starting point for your research. Of the companies listed above, I find APD particularly attractive based on fundamentals and long-term growth prospects. The company boasts a healthy yield of 2.6%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.