In this post is a fresh list of 25 bullish stocks to watch for the week of September 14, 2009. I will be keeping my eye on all of these stocks this week, but chose only one to write a detailed option trade about this week. All of these stocks demonstrated tremendous strength during Friday's trade breaking out to the upside on huge volume. The table below shows the company, ticker, Friday's per share % increase, and Friday's volume increase (% increased compared to 50 day average). For your convenience I have ranked the stocks in order from greatest to least volume % change.

The stocks which are most attractive to me from the list above are: Informatica Corp, Innodata Isogen Inc, Fibertower Corp, and Select Comfort Corp. However from the four listed, the only stock which has options available to trade is Informatica, so below is a detailed option trade involving Informatica. To learn more about the option strategies outlined in this post, risks, pricing, calculations, other strategies, and options in general, click here.

Sentiment

Stocks opened higher, but the early gains faded fast and the major averages have been under water throughout most of Friday's trading session. With very little tradable news to guide the early action, the Dow Jones Industrial Average extended this week's three-day 236-point advance heading into the University of Michigan's preliminary Consumer Sentiment Index for September.

The data, released 25 minutes into the trading session, didn't disappoint. According to the index, sentiment improved to 70.2 in early September, up from 65.7 at the end of August and better than the 67.5 economists had predicted. The Dow Jones Industrial Average hit session highs on the news.

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

The third fund in our series is Seth Klarman's Baupost Group. Klarman started working for Baupost at age 25 after receiving his Harvard MBA and now runs the show. This solid value focused firm has seen an annual compounded return of 20% and its long-term timeframe and focus on equities makes it ideal for tracking and cloning. In fact, it is one of the few funds selected to be included in our MarketFolly custom portfolio. Baupost as a hedge fund was recently ranked 13th overall in Alpha's 2009 hedge fund rankings. We highly recommend reading up on Klarman and his investment methodology. He has detailed his investment process in a now out of print book, Margin of Safety where he provides a "how-to" on risk-averse value investing.

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up we have Baupost Group ran by Seth Klarman. Value investors will be familiar with this name as he is often one of the top names mentioned after the likes of Warren Buffett. Over the past 25 years, Baupost has seen an annual compound return of 20%. Such a pristine track record has landed Baupost in our custom Market Folly portfolio, where we have cloned a hedge fund portfolio with the Alphaclone software that is returning 17% annualized since mid-2002. Baupost's contributions to our portfolio are definitely a big reason for the solid numbers.

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up, we have John Griffin's Blue Ridge Capital. Now, Griffin is similar to Andreas Halvorsen of Viking Global and Stephen Mandel at Lone Pine Capital in that they are all 'Tiger Cubs' (pupils of Julian Robertson during their time at Tiger Management). Griffin though, is more well-known because he was Julian Robertson's right hand man. So needless to say, he knows his stuff.

With natural gas at insanely low levels, there is value in the sector. I have a potential play on it. Here is a fantastic post on the inevitable natural gas price spike courtesy of Chris Nedler at getREALlist. Here are the basics on supply / demand / pricing from the post:

Now I am seeing the same pattern in natural gas (or as traders sometimes call it, “natty”), only the danger of constrained supply is possibly even greater, since about 84% of US natural gas consumed is produced domestically and there is very little storage throughout the system.

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up is Baupost Group run by Seth Klarman. Klarman received his MBA from Harvard Business School and started working at Baupost at age 25. Over the past 25 years, Baupost has seen an annual compound return of 20% and is ranked 49th in Alpha's hedge fund rankings. Klarman has always considered himself a value investor and has been patient through the market turmoil. The past few years they have had nearly half their $14 billion in assets in cash. But, with turmoil comes opportunity. And, as such, Baupost's cash has been gradually deployed by Klarman and Baupost's 100 employees, leaving them with around a fourth of assets left in cash. Klarman's investment process is detailed in his book Margin of Safety. In it, he lays out a "how-to" on risk-averse value investing. The book is no longer actively printed and is very hard to find. His take on recent market action can be viewed in his recent interview with Harvard Business School. Baupost was very active in filing numerous 13Gs in January, and again in February. They've also been buying more RHIE (RHI Entertainment).

Q4 2008 Earnings Call

February 26, 2009, 11:00 am ET

Why follow Seth Klarman?

Seth Klarman, Founder and President of The Baupost Group, is the author of Security Analysis and one of the most widely respected value-oriented investors. From inception in February 1983 through December 2008, The Baupost Group has delivered an annual compounded return of approximately 20%.

This is the Third Quarter 2008 edition of our ongoing hedge fund tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F's here.

The other funds we've already covered include:

This is the Third Quarter 2008 edition of our ongoing hedge fund tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F's here.

Next up, we have John Griffin's Blue Ridge Capital. Now, Griffin is similar to Stephen Mandel at Lone Pine Capital and Lee Ainslie at Maverick Capital in that they all are 'Tiger Cubs' (a.k.a. pupils of Julian Robertson while at Tiger Management). Griffin though, is more well known because he was Julian Robertson's right hand man. So, needless to say, he knows his stuff. Blue Ridge seeks absolute returns by investing in companies who dominate their industries and shorting the companies who have fundamental problems.

Seth Klarman is one of the more secretive money managers out there so I don’t know what returns Baupost has generated in 2008. Here are some recent stories with his thoughts on current market conditions. Looking at his SEC filing, I see a few interesting moves:

• Klarman didn’t open any bold new positions other than $61M in Barry Diller’s IACI and $52M in RHI Entertainment (RHIE).  There were smallish investments in Acergy (ACGY) and CapitalSource notes.
• True to their value investing philosophy, after massive drops in prices, Baupost added substantially to three energy partnerships, Breitburn Energy Partners (BBEP), Linn Energy (LINE) and Exterran Holdings (EXH). LINE is fairly well-known (probably due to Jim Cramer) so its current price is close to quarter-end’s quote.  BBEP and EXH are off an additional 50%+ since then.  Klarman also added to already big positions in two media companies, News Corp (NWS) and Liberty Media (LMDIA).
• Klarman sold off CapitalSource (CSE) and a whole mess of SPACs.  What really caught my eye was the drastic reduction in the health insurance companies, UnitedHealth Group (UNH) and Wellpoint (WLP).  Klarman (and a few other big-name value investors) had opened these positions over the past 2 quarters and normally, value investors aren’t expected to exit positions so quickly.  Perhaps the folks at Baupost saw something bearish in the industry before the markets did.
• I think it's important for readers to bear in mind that Klarman (and the next manager, Einhorn) have a wide range of markets they participate in.  So these SEC filings are incomplete pictures of what’s going on in their funds and it would be dangerous to blindly follow them or assume they are bullish on a stock or industry just because a position is shown in the filing. For example, Einhorn is a prominent short-seller and shorts are not disclosed in the 13F filing.  So a long position could simply be the hedge portion of a bearish pair trade.  Or maybe Klarman is shorting the heck out of natural gas and has a few long positions like BBEP and LINE as a hedge.  I don’t think that’s the case but it’s something piggyback investors should consider.

After having issues with Third Avenue’s (Martin Whitman) filing, I decided to substitute David Einhorn of Greenlight Capital.  With the American Capital (ACAS) debacle fresh in my mind, it seemed appropriate to study a guy that I should have paid attention to earlier.  His book on Allied Capital, Fooling Some of the People All of the Time, could have saved me from a disastrous investment.  Finally, he was featured in the World Series of Poker for the 2nd straight year and is pretty good, though it seemed to me he plays more of a  ”game theory” style , a la Howard Beal (see The Professor, The Banker and the Suicide King for more details), than a tight conservative style I would normally associate with value investors.  Anyway, he obviously has a good handle on probabilities which is directly applicable to investing.  His filing is interesting:

Q3 FY08 Earnings Call

November 6, 2008, 11:00 AM ET

Q2 2008 Earnings Call

August 6, 2008 11:00 am ET

Are the top value hedge funds going to beat the market every quarter, or just outperform when the market is going up?

Maybe we should ask Will Ferrell, errr, I mean Robert Goulet:

Q1 2008 Earnings Call

May 7, 2008 11:00 am ET

See intro to Leading Hedge Funds' Best Ideas.

Klarman doubled down on his top three holdings News Corp (NWS), Wellpoint (WLP), and Exterran (EXH). He sold out of his SLM (SLM) position. New positions include Theravance (THRX), Sapphire Industrials (FYR) and Borders (BGP).

We received a positive response to our post on the stocks that make up the Clean Energy ETF (PBW) last week. Below we highlight the stocks that make up the S&P Oil & Gas Equipment & Services ETF (XES).

As shown in the chart below, XES is currently trading well above its 50-day moving average. Obviously, its holdings are trading well into overbought territory as well. Superior Energy (SPN) is the furthest above its 50-day moving average at 24.48%. SPN is followed by FTI, PTEN and CAM. TDW, ESV and RDC have the lowest estimated P/E ratios of the stocks that make up XES, while FTI, EXH and SLB have the highest.

Wow. A full third of Klarman's portfolio is in Sallie Mae (SLM). When one of the best investors on the planet has this sort conviction, that is good enough for me. Link to a Klarman's speech at MIT.