13D and 13G filings are useful tools for investors who want to know what stocks have been recently bought by hedge funds. The advantage of these over 13F filings is that they are much more timely, generally filed within days or a week of taking a large position in a stock; the drawback is that because hedge funds have to meet a certain threshold for reporting a position it is very rare to see them for large cap stocks. Of course, we track all of these filings to get the most complete picture about what hedge funds own and what managers are thinking. Here are five stocks that hedge funds have bought recently:
Billionaire Leon Cooperman’s Omega Advisors (see Cooperman’s favorite stocks) reported a large stake in McMoRan Exploration Co (NYSE:MMR). This is a special situation investment: McMoRan Exploration, along with Plains Exploration & Production Company (NYSE:PXP), is set to be acquired to large natural resources company Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), which had formerly owned McMoRan Exploration (learn more about the acquisition). Many hedge funds like to invest in merger arbitrage because returns depend on whether or not the merger happens, and therefore are theoretically uncorrelated with the market (find out more about merger arbitrage).
Joho Capital, which is managed by Tiger Cub Robert Karr (research more stocks Karr likes), reported owning close to 900,000 shares of Yelp Inc (NYSE:YELP). The online reviews company is struggling with profitability- Wall Street analysts think that it will get into the black in 2013, but at a very low level. Revenue came in 63% higher last quarter than in the third quarter of 2011, but the stock has still slumped since its recent IPO. In addition, 55% of Yelp’s shares outstanding are held short. We don’t think that it’s a good buy. Read more analysis of Yelp compared to its peers.
Healthcare focused hedge fund Deerfield Management, manage by James Flynn, controls just under 10% of the outstanding shares of medical device company Nxstage Medical, Inc. (NASDAQ:NXTM) according to a recent filing that reported an increase in the number of shares in Deerfield’s portfolio. Nxstage, whose primary product is used for hemodialysis treatment including at patients’ homes, counts Warren Buffett favorite DaVita HealthCare Partners Inc (NYSE:DVA) among its major customers. The company is unprofitable, and from our point of view not likely to see profits next year either, but revenue and operating income have been up and it may be a good stock to watch over the next couple quarters.
Coliseum Capital Management, managed by Christopher Shackelton and Adam Gray, now owns 2.4 million shares of LHC Group, Inc. (NASDAQ:LHC) after buying about 44,000 additional shares at an average price of $20.49. This is up from 2.2 million shares at the beginning of October, when LHC was its largest 13F holding by market value (check out more of Coliseum’s stock picks). LHC is a $370 million market cap home health care company primarily serving Medicare patients, and trades at 14 times earnings. We would note that it’s uncertain whether or not there will be changes to Medicare as a result of federal healthcare policy, but the valuation is low enough to at least be worth considering.
Engility Holdings Inc (NYSE:EGL) had Abrams Capital Management (already a major holder of the stock) buy an additional 140,000 shares. Abrams is managed by former Baupost Group employee David Abrams (see more stocks Abrams has been buying). The engineering services company has a market capitalization of $320 million, but on average over 100,000 shares are traded daily and the current stock price is over $19. Revenue was down last quarter versus a year earlier, and there is considerable short interest, but sell-side projections have the stock trading at 7 times next year’s earnings.