Normally, hedge fund long positions are disclosed in 13F filings which come about six weeks after the end of the quarter. There’s an exception, however: when a hedge fund owns over 5% of the outstanding shares of a stock (or if it changes its position after reaching that threshold) it must disclose its activity fairly quickly. As a result, investors have a chance to see a fairly fresh purchase from a hedge fund, examine it more closely, and decide if the stock is a good fit for their own portfolio. Here are some moves that hedge funds have been making recently:
Billionaire Steven Cohen’s SAC Capital Advisors seems to believe the rumors that Yahoo may buy OpenTable Inc (NASDAQ:OPEN); the fund, which had no position in OpenTable at the end of June, reported that it owned 1.2 million shares in late October. We had been quite skeptical that Yahoo would actually make such an acquisition- there seemed to be few prospects for synergies between the two companies- and OpenTable as a stand-alone company does not look too attractive at 50 times trailing earnings and 24 times forward earnings estimates. In addition, earnings per share growth has been muted in recent quarters.
Activist fund Starboard Value, managed by Jeffrey Smith, added to what had been the largest position in the fund’s 13F portfolio at the end of June by boosting its stake in Progress Software Corporation (NASDAQ:PRGS) to 5.6 million shares (8.7% of the shares outstanding). Progress Software’s third fiscal quarter showed a 14% decline in revenue and an even greater decrease in earnings compared to the same period last year. It is supposed to recover next year, with Wall Street analyst estimates implying a forward P/E of 15 here as well. We thought that Progress was not as good a buy as its peers.
Tiger Cub John Griffin’s Blue Ridge Capital recently increased its position in Owens Corning (NYSE:OC), a provider of composites and building materials such as glass fiber, to 6.7 million shares. This is up from 2.6 million shares at the end of June. The fund’s investment in Owens Corning is likely intended to give it exposure to housing and construction markets, which market observers believe are starting to turn up. Revenue and earnings are down so far this year- earnings were actually negative in the first half of 2012- and the company trades at 15 times forward earnings estimates. Read our analysis of Owens Corning. Owens Corning is probably a better buy than some other building materials companies, but we’re sure that an investor can find a better way to play housing and construction.
Diamondback Energy Inc (NASDAQ:FANG), an oil and gas exploration company operating primarily in Texas’s Permian Basin, saw Wexford Capital report a position of 16.4 million shares. Diamondback reported a nearly 40% increase in its revenue in the second quarter of the year compared to the same period in 2011, which caused large earnings growth at the young company, and it carries a trailing P/E multiple of 30. It has a market cap of only about $240 million, but has had over $10 million in average daily dollar volume in the past three months. It could be an alternative to larger exploration and production companies but we’d need to look at it further.
Marcato Capital Management reported ownership of 14.2 million shares of Cincinnati Bell Inc. (NYSE:CBB), which represented 7.2% of the shares outstanding. Richard McGuire, who founded Marcato in 2010, had previously worked at Pershing Square under notable hedge fund manager Bill Ackman. Cincinnati Bell is a telecommunications company operating in the Midwest (as one might expect). At a market capitalization of $1.1 billion, it trades at 45 times annualized earnings for the first half of 2012 and 22 times analyst consensus for next year. We thought that was too high a price for us. Learn more about Cincinnati Bell and Marcato's purchase.