Want to Invest Like a Hedge Fund? Have a Look at These 3 Stocks Favored by Top Money Managers

Benjamin Graham divided investors into two types: defensive investors and enterprising investors. A few would disagree that hedge funds reside the ‘enterprising’ camp of investors, as they tend to devote time and care for the selection of securities. Of course, that does not imply that each of their stock picks will outperform the broader market, but these investors always get rewarded for their skill and effort. Having this in mind, the following article will discuss three moves disclosed by several hedge funds tracked by Insider Monkey through freshly-submitted 13G and 13D filings.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

According to a Schedule 13G filed with the U.S. Securities and Exchange Commission, Steve Cohen’s Point72 Asset Management holds a stake of nearly 3.80 million shares in Weight Watchers International Inc. (NYSE:WTW). The newly-initiated position accounts for 6.0% of the company’s outstanding common stock. What a timely move made by Steve Cohen and his team; the shares of the weight loss management company closed 35.20% in the green on Friday and have advanced an additional 6.20% thus far in Friday’s post-market trading session. The company disclosed its third-quarter earnings report this Thursday, posting revenues of $273.3 million, which were down 20.8% year-over-year and beat analysts’ expectations of $266.3 million (read more details). Shares of Weight Watchers International Inc. (NYSE:WTW) are down 7% year-to-date, but they have skyrocketed by 227% over the past month following the company’s announcement that Oprah Winfrey acquired a 10% ownership stake and got a seat on its board of directors.

However, the weight-loss assistance company lost its charm among the hedge funds tracked by Insider Monkey during the second quarter, as the number of top money managers invested in the company decreased to nine from 18 quarter-over-quarter. Similarly, the value of their stakes dropped to $18.56 million from $28.73 million during the three-month period. Daniel S. Och’s OZ Management owned 243,600 shares in Weight Watchers International Inc. (NYSE:WTW) on June 30.

Let’s head to the next page, where we disclose the stances of Glenhill Advisors and Pine River Capital Management on two stocks, namely MicroStrategy Incorporated (NASDAQ:MSTR) and Morgans Hotel Group Co. (NASDAQ:MHGC).

In another 13G filing with the SEC, Glenn J. Krevlin’s Glenhill Advisors disclosed owning 553,422 shares in MicroStrategy Incorporated (NASDAQ:MSTR), representing 5.9% of the company’s outstanding shares. This compares to the 354,578-share stake revealed through the hedge fund’s 13F filing for the three-month period that ended June 30. At the end of October, the provider of enterprise software platforms released mixed third-quarter financial results, which have put some weight on the stock. The company reported a lower-than-expected top-line, but managed to deliver stronger-than-expected earnings, thanks to its cost cutting efforts (read more details). However, MicroStrategy Incorporated (NASDAQ:MSTR) has been having a hard time boosting up its revenues over the past few years, so investors might have started to believe that the company’s cost cutting measures do not represent a sustainable growth strategy over the long-term spectrum.

The number of hedge funds with positions in the company remained unchanged during the second quarter at 28, whereas the value of these positions decreased to $464.83 million from $490.06 million quarter-over-quarter. Even so, these hedge funds accumulated slightly more than 24% of the company’s shares on June 30. It is also appears that the stock is fairly valued at the moment, considering the fierce competition within the enterprise analytics market; the stock is trading at a forward P/E ratio of 21.22, compared to a median of 17.65 for the S&P 500 Index. Ricky Sandler’s Eminence Capital was the top shareholder of MicroStrategy Incorporated (NASDAQ:MSTR) within our database at the end of the June quarter, holding roughly 889,000 shares.

Brian Taylor’s Pine River Capital Management L.P. recently filed a 13D filing with the SEC, disclosing an ownership stake of 3.14 million shares or 9.1% in Morgans Hotel Group Co. (NASDAQ:MHGC). The investment firm did not change its ownership stake, but did change its stance from passive to active. On November 4, the integrated lifestyle hospitality company appointed Adam Stein, who also serves as an employee of Pine River Capital Management, to its Board of Directors following the resignation of John Brecker. In mid-September, real estate investment firm Rambleside Holdings offered to buy Morgans Hotel Group Co. (NASDAQ:MHGC)’s lodging properties in an all-cash deal estimated at $507 million. Let us remind you that Morgans has been in advanced merger discussions with Sam Nazarian’s SBE Entertainment Group. However, a recent article published by The Wall Street Journal says that the negotiations between the two parties had broken down.

The hedge fund sentiment on the stock did not change during the second quarter, with the number of hedge funds invested in the company staying intact at 20. Nevertheless, the value of the money poured into the stock declined to $59.36 million from $70.19 million quarter-on-quarter. These 20 money managers stockpiled 25.60% of the company’s shares at the end of June. Let’s not forget to mention that the shares of the lifestyle hospitality company have lost 50% since the beginning of the year. Steve Tannenbaum’s Greenwood Investments held a 1.23 million-share stake in Morgans Hotel Group Co. (NASDAQ:MHGC) at the end of the June quarter.

Disclosure: None