Regis, KB Home, and More Stocks Hedge Funds are Buying

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CITADEL INVESTMENT GROUP13F filings provide the most complete picture of hedge fund portfolios, and they are certainly worth keeping track of, but they are limited in that they are only released once a quarter, and six to seven weeks after the end of the quarter at that. More up-to-date information comes in 13D and 13G filings, which are made when a fund or other major investor owns 5% or more of a stock’s shares outstanding. The catch is that these restrictions generally mean that filings are limited to small cap and mid cap stocks; however, these tend to be the exact stocks that are less well known and where it can be particularly useful for hedge funds to identify picks that are worthy of further research. Here are five stocks hedge funds have been buying recently:

Starboard Value, which is managed by Jeffrey Smith, increased its holdings of Regis Corporation (NYSE:RGS) to a total of 4.2 million shares. The operator and franchisor of hair salons had already been one of Starboard’s five largest holdings by market value at the beginning of October (find more of Starboard’s favorite stocks). The fund now owns about 7% of the company’s outstanding shares. Regis trades at 21 times forward earnings estimates, and in its most recent quarter revenue was actually down compared to the same period in the previous year; operating income was about flat. In addition, while Starboard appears optimistic there is considerable short interest suggesting that a number of traders consider Regis overvalued. We don’t think that it’s a good buy. See more of our analysis of Regis.

Billionaire Ken Griffin’s Citadel Investment Group reported owning 5.4 million shares of homebuilder KB Home (NYSE:KBH). Read about Citadel’s investment in KB Home. The company grew its revenue 19% in its last fiscal year (which ended in November 2012) compared to the previous one; the bottom line also improved, though KB Home remained unprofitable. Given its losses, there would have to be continued improvement in the housing market for KB Home to look anything like a value stock and it might be better to consider peers such as Lennar Corporation (NYSE:LEN) and D.R. Horton, Inc. (NYSE:DHI).

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