Many leading funds filed forms 13-D and 13-G (and form 4) with the SEC last week, on Monday through Wednesday, March 5th to March 7th, indicating that they had amended their ownership in U.S. traded public companies. The following are the most notable filings, in addition to specific healthcare and tech picks covered in an earlier article (for more info on Forms 13-D and 13-G, and how to interpret that, please refer to the end of this article):
Zynga Inc (ZNGA): ZNGA develops, markets and operates online social games such as CityVille, FarmVille, FrontierVille and others, making them available worldwide on various platforms, including Facebook, MySpace and Yahoo, as well as the iPad, iPhone and Android devices. On Thursday, Morgan Stanley filed SEC Form SC 13G/A indicating that it holds 26.4 million shares, an increase from the 16.0 million shares that it indicated holding in a prior SC 13G filing on January 6th.
ZNGA went public at $10 on December 15th, and since the end of Q4, a number of institutional investors have filed forms SC 13D/Gs indicating that they have amended their ownership of company shares. This included mega fund managers JPMorgan Chase & Co. (6.7 million shares), Fidelity Investments (5.6 million shares), T Rowe Price (11.5 million share) and Capital Research Global Investors (21.1 million shares); and also guru fund manager Tiger Global Management (7.7 million shares).
ZNGA shares were weak in the weeks following the IPO, but have ratcheted up recently as we get close to an IPO of Facebook (FB) at a valuation of near $100 billion. The company accounts for 12% of Facebook revenue, and the argument among bulls has been that the market is not valuing it rich enough in comparison to Facebook.
Of course, this is not 1999, and we have all seen the peril of valuing companies based strictly on comparables, and an argument can be easily made that both Facebook and Zynga are overvalued based on fundamentals. Also, recently, the company reported a solid Q4, beating earnings (5c v/s 2c) and revenues ($311 million v/s $302 million). However, the beat was not significant enough for the bears, and a number of brokers downgraded the stock on the basis of valuation. Additional lingering concerns among bears include its Facebook dependency, the impending expiration of the lockup period, and the high stock compensation expense that is overwhelming non-GAAP profits.
Ctrip.com International ADR (CTRP): CTRP is a China-based consolidator of hotel accommodations, airline tickets and packaged tours targeting individual business and leisure travelers in China. On Tuesday, Oppenheimer Funds, with $53.6 billion in 13-F assets, filed SEC Form SC 13G/A indicating that it holds 15.6 million or 10.8% of outstanding shares, an increase from the 13.2 million shares it held at the end of Q4.
CTRP shares have been weak ever since the company forecast a drop in Q4 margins last November, and in its Q4 that it released last month, the company reported in-line revenue and earnings. Its shares currently trade at 19-20 forward P/E and 3.2 P/B compared to averages of 70.5 and 5.4 for its peers in the Internet commerce group. With the growth of the Chinese travel market behind it, CTRP seems like an attractive play, but we would wait on the sidelines until margin growth is resumed.
Two Harbors Investment (TWO): TWO is a REIT that focuses on investing in, financing and managing residential mortgage-backed securities and related investments. On Monday, SAB Capital Advisors, with $523 million in 13-F assets at the end of Q4, filed SEC Form SC 13G indicating that it holds 12.2 million or 5.7% of outstanding shares, an increase from the 1.2 million shares it held at the end of Q4. TWO trades at a current 6.6 P/E on a TTM basis, and 1.1 P/B compared to averages of 7.7 and 0.9 for its peers in the mortgage trust REIT group.
Schwab Charles Corp. (SCHW): SCHW provides brokerage, banking and financial services to individual and institutional clients. On Wednesday, Pasadena, CA,-based mega fund PRIMECAP Management Co., with $62.7 billion in 13-F assets, filed SEC Form SC 13G indicating that it holds 64.8 million or 5.1% of outstanding shares, an increase from the 63.7 million shares it held at the end of Q4. In its latest Q4 report, SCHW reported in-line revenue and earnings, and the stock currently trades near six-year lows, at a premium 16-17 forward P/E and 2.3 P/B compared to averages of 12.5 and 1.3 for its peers in the investment banking group.
Form 13-D is commonly referred to as "beneficial ownership report," and is required when a person or a group of persons acquires beneficial ownership of more than 5% of the voting class of a company's equity securities; form 13-G is the abbreviated version of the form that is allowed under certain circumstances.
The information in forms 13-D and 13-G is extremely timely as it is required to be filed within 10 days after the purchase, in contrast to 13-F quarterly filings by Institutions that are filed every three months. The information contained in 13-F filings, thereby, can as much as 18 weeks old by the time it is disseminated to the public. Furthermore, by virtue of their 5% ownership in public companies, the information contained in the 13-D and 13-G filings indicates only high confidence or high conviction moves by institutions and insiders, and hence can be interpreted to be of greater relevance to the investment community than the 13-F quarterly filings. Furthermore, 13-D and 13-G filings often are a precursor to a hostile takeover, company breakups and other "change of control" events, and often they will include a letter to management explaining the reason for their taking a large stake in the company.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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