We have been tracking 13F filings from hedge funds and other notable investors as they come in and reveal many of these market players’ long equity positions as of the end of December. Despite the delay, we have found that 13Fs can actually be mined for valuable information. For example, the most popular small cap stocks among hedge funds have, on average, outperformed the S&P 500 by 18 percentage points per year (read more about imitating hedge funds' small cap picks). Investors can also interpret filings as a list of stock picks, similar to what one would get from interviewing a top investor. Of course, blindly imitating fund managers might not be wise, but the included names can still be considered as potential investments.
Paul Singer, now a billionaire, founded Elliott Management in 1977. It now has about $15 billion in assets under management. Elliott occasionally engages in activism against underperforming companies or those which it believes could be managed more effectively. Read on to see some moves the fund made in its portfolio in the fourth quarter of 2012 and research Singer's previous filings.
Compuware. Singer and his team increased their holdings of Compuware Corporation (NASDAQ:CPWR) from 5.7 million shares at the beginning of October to about 12 million shares at the end of the year. The hedge fund has also proposed a takeover of the $2.5 billion market cap company, which develops enterprise software. Compuware rejected the offer but the stock currently trades at above Elliott’s proposed price- and therefore at a high earnings multiple- due to the possibility of other buyers, including strategics, offering higher prices. Management has also taken the proposal as a signal to improve value creation; the company is planning both a spinout and dividend payments. Elliott also maintained its large stake in software company BMC Software, Inc. (NASDAQ:BMC).
Diversifying in data storage. Elliott sold almost half of its shares of Brocade Communications Systems, Inc. (NASDAQ:BRCD) but bought shares of NetApp Inc. (NASDAQ:NTAP); both companies focus on products related to storage area networking. The fund now owns about 15 million and 2 million shares of the respective companies (note that NetApp’s stock price is about six times that of Brocade). Both companies have reported their results for the fiscal quarter ending in January, with modest revenue growth compared to the same period in the previous fiscal year in both cases (though Netapp did experience a strong improvement on the bottom line). The sell-side is more bullish on Brocade, which carries a forward P/E multiple of 8 and a five-year PEG ratio of less than 1 as opposed to Netapp’s forward earnings multiple of 14.
Singer also liked a small-cap banking stock: