By Ryan C. Dallavia
Hedge funds file 13D or 13G filings with the SEC when they take on, add to, or sell part of major holdings in public companies. By reviewing these filings and studying the history of a particular fund's investment in the same companies, investors can get an idea of what top hedge fund managers think about the same stocks that they themselves have the opportunity to trade in the market. Recently, several hedge funds are making large trades in a number of stocks you may want to own. Here's a breakdown:
Navistar International Corp. (NAV)
Activist investor and Wall Street legend, Carl Icahn, bought Navistar five times in mid-to-late July, purchasing approximately 21 million shares at prices ranging from $22.82 to $23.01. This raises his total stake to approximately 14.9%. Why does Icahn believe Navistar is attractive at these levels? We believe there are three reasons.
Navistar is comprised of four segments: trucking, engine, parts, and financial services. Truck and engine constitute more than 90% of the business. Icahn mentioned in an interview that, while the company had created a new engine and the CEO has performed reasonably well, there were "problems" with the engine. His tone suggested that he was not completely satisfied with the CEO's performance. Furthermore, he stated that, "we may have to do something here." Consequently, this appears to be one of his activist plays whereby he strong-arms management to get the performance he desires.
Second, given that the company's major segments are levered to an uptick in manufacturing, it's also possible that this may tip his hand with respect to his view on the U.S. macro-economy, indicating that he has a favorable view. Third, his purchases occurred very close to the company's 52-week low of $20.21. Thus, there may also be a valuation call in here.
Anthera Pharmaceuticals, Inc. (ANTH)
Peter Kolchinsky, Ph.D., manager of RA Capital Management, picked-up 4.5 million shares of Anthera Pharmaceuticals, Inc., representing a 6.1% stake. He does not appear to have had a position at the close of Q1 2012. Anthera has one drug, Blisibimod, in Phase 2 trials; it treats autoimmune diseases by targeting elevated levels of the B-lymphocyte stimulator "BAFF." Like all drugs, it may be approved for additional indications.
The Harvard grad is an "evidence-based" investor of pharmaceutical companies in the small-cap space. His investment suggests he is confident that Blisibimod will hit the market and stimulate share-price appreciation. Kolchinsky is not the only one who is a believer in Anthera. David Abrams has purchased almost 1.6 million shares in the company, constituting a stake of 9.7%.
LHC Group, Inc. (LHCG)
According to a Form 4 filing dated July 27, Christopher Shackelton picked up 31,200 shares of LHC Group, Inc. for Coliseum Capital Management at $16.87/share. This constitutes an ownership interest of 2,129,124 or 11.2% of shares outstanding. At the end of last quarter, Coliseum held 10.7% of shares outstanding. The combined position represents approximately 22.9% of the free float.
According to the company's filing, LHC, a health care provider, caters to the "post-acute continuum of care primarily for Medicare beneficiaries." The company provides both home-based and hospital-based services. Per LHC's latest quarterly filing, the company operated in Alabama, Arkansas, Georgia, Florida, Idaho, Kentucky, Louisiana, Maryland, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, Oregon, Tennessee, Texas, Virginia, Washington and West Virginia.
The logic behind Shackelton's purchase could be based on technicals or fundamentals. The stock is currently trading near $18/share - a key resistance level over the last month. Earnings were reported on July 30 and the stock at the time of writing was trading at $18.03. On the fundamental front, this could be interpreted as a long-term play on the aging population (i.e., a steadily increasing proportion of the population will need the company's services going forward). We believe, however, the logic was based more on technicals, as the aging population story is well-known and, one would think, already impounded in the price.
New Oriental Education & Technology Group, Inc. (EDU)
According to a 13G filed July 27, Joho Partners picked up just over 3.8 million shares of the New Oriental Education & Technology Group, Inc. The buy represents a stake to 2.1% of shares outstanding. The fund does not appear to have had a position in the stock prior to this transaction (read the details here).
Per the company's most recent quarterly filing, the company is the largest provider of private educational services in China consisting primarily of: "English and other foreign language training, test preparation courses for major admissions and assessment tests in the United States, the PRC and Commonwealth countries." It is also engaged in the "development and distribution of educational content, software and other technology, and online education."
Assuming Joho's trade occurred near July 27, we can assume, from a technical perspective, that they either (a) assumed the stock would test and breakthrough the technical resistance level of approximately $11.95, or (b) the company would beat earnings expectations and ascend to its 52-week high of $12.13. New Oriental released earnings on July 30 and has since traded as low as $11.07. If Joho is in this for the long haul, it could easily be a bet on increasing demand for English training and related educational products from Chinese nationals. This is highly probable as they have other Chinese holdings.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.