Quarterly 13F filings are now flowing in for the first quarter reporting period, disclosing the most noteworthy moves made by widely-followed hedge fund vehicles throughout the turbulent first three months of this year. However, retail investors seeking to keep a close eye on hedge funds’ moves should also examine their 13G, 13D, Form 4 and other related filings submitted with the SEC. These filings usually contain very informative content, including insights on why certain companies seem undervalued, which is definitely worth the attention of the investment community. For that reason, the following article will examine four filings recently submitted by noteworthy hedge fund firms tracked by Insider Monkey.
At Insider Monkey, we track around 785 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
Greenlight Capital Slashes SunEdison Stake
According to a freshly-amended 13D filing, David Einhorn’s Greenlight Capital currently owns 11.33 million shares of Sunedison Inc. (NYSE:SUNE), which account for 2.8% of the company’s outstanding common stock. This stake includes 1.52 million shares of common stock issuable upon conversion of the outstanding 2.00% Convertible Senior Notes due 2018 owned by Greenlight, 1.66 million shares issuable upon the exercise of warrants, as well as 2.92 million shares issuable upon the conversion of 5.00% Senior Secured Convertible Notes due 2018. The total ownership amount represents a significant decrease from the stake of 27.15 million shares disclosed in Greenlight’s original 13D filed on the renewable energy development company, which was submitted with the SEC in late January. Earlier this year, Mr. Einhorn’s Greenlight Capital and Sunedison Inc. (NYSE:SUNE) reached an agreement under which the battered company appointed Claire Gogel, a former executive of Greenlight, to the Board and also amended some policies that hinder SunEdison from making equity issuances without the approval of nearly all Board members.
SunEdison has seen its market value plummet by 98% in the past 12 months, as Wall Street has become more concerned about the company’s extremely weak balance sheet. Just recently, numerous news outlets revealed that the once-highly popular company was preparing to file for bankruptcy. The number of hedge funds in our system with stakes in the struggling solar company declined to 50 from 73 during the final quarter of 2015. David Gallo’s Valinor Management LLC owned 22.24 million shares of Sunedison Inc. (NYSE:SUNE) on December 31.
Let’s head to the next two pages of this article, where we will discuss SEC filings submitted by OZ Management and two other investment firms.
OZ Management Discloses 5.2% Stake in Promising Payments Technology Company
In a Schedule 13G filing, Daniel S. Och’s OZ Management disclosed a new stake of 1.65 million Class A shares of Square Inc. (NYSE:SQ), which constitute 5.2% of the company’s outstanding shares. The mobile payment company, founded by Twitter Inc. (NYSE:TWTR)’s CEO and co-founder Jack Dorsey, went public in November 2015, issuing and selling 29.70 million Class A shares at an IPO price of $9.00. The shares of the San Francisco-based payments technology company have gained a whopping 48% in the past three months and are 7% in the green year-to-date. Analysts at Canaccord Genuity recently initiated coverage on Square Inc. (NYSE:SQ) with a ‘Hold’ rating and a price target of $13, but the company’s shares are already trading above the freshly-assigned price target. Square recently announced plans to offer loans to small businesses, seeking to become a traditional online lender. Even before the announcement, the company’s Square Capital was providing merchant cash advances (MCAs) to pre-qualified sellers. The terms of these MCAs are simple: merchants in need of fast money get funds from Square extremely quickly, usually on the next business day, in exchange for payments equal to a percentage of the payment volume processed by Square, or a fixed amount. The company has been growing at a high pace in recent years, with its total net revenue increasing to $1.27 billion in 2015 from $850.19 million in 2014 and $552.43 million in 2013. There were nine money managers tracked by Insider Monkey with stakes in the payments technology company on December 31. Tiger Global Management LLC, founded by Chase Coleman, had 6.95 million shares of Square Inc. (NYSE:SQ) in its equity portfolio at the end of December.
Wildcat Capital Concerned Over Possible Private Placements of Common Stock
As revealed by a new Schedule 13D filing, Leonard A. Potter’s Wildcat Capital Management LLC currently owns 2.62 million shares of Sorrento Therapeutics Inc. (NASDAQ:SRNE), which make up 6.8% of the company’s outstanding common stock. While Wildcat’s equity holding in Sorrento has not incurred any changes since the end of 2015, the 13D was filed to disclose that Wildcat is concerned over certain possible public placements of common stock announced by the company earlier this month. Precisely, the biopharmaceutical company announced on April 4 that it had entered into definitive agreements with certain investors under which they will invest up to $150 million in separate private placements in newly-issued common stock at $5.55 per share and receive warrants to purchase shares with an exercise price of $8.50 per share. Wildcat Capital believes that Sorrento Therapeutics Inc. (NASDAQ:SRNE) will have to issue up to 32.32 million shares of common stock, which would increase the company’s outstanding shares by more than 45%. Wildcat Capital and other shareholders are concerned regarding the significant dilution that would take place should those transactions be completed and the “lack of information and disclosure provided by the Issuer regarding the Transactions”. Therefore, Mr. Potter and his team demand the right to inspect the books and records and other documents related to the definitive agreements and transactions mentioned above. Shares of Sorrento are down by 18% year-to-date. A total of 11 money managers monitored by our team were invested in the clinical-stage biopharmaceutical company, with them having ownership of 18% of its outstanding shares, at least for now. Bihua Chen’s Cormorant Asset Management had a 2.10-million share position in Sorrento Therapeutics Inc. (NASDAQ:SRNE) at the end of 2015.
Intensifying Proxy Fight Between Red Mountain and iRobot
Let’s turn our focus onto the ongoing proxy fight between Willem Mesdag’s Red Mountain Capital Partners LLC and iRobot Corporation (NASDAQ:IRBT), which is getting uglier and uglier as the upcoming meeting of shareholders approaches. Earlier this week, Red Mountain sent another letter to iRobot shareholders responding to “a series of attacks contained in a letter to shareholders” from iRobot Chairman and CEO Colin Angle, dated April 14. Precisely, Mr. Mesdag and his team, who seek support for the election of two director nominees (including Mr. Mesdag himself) at the company’s upcoming meeting of shareholders, said that Mr. Angle attacked the “relevancy of our candidates’ experience and our understanding of the Company’s business”. Red Mountain said that the Board of the robotics company has already adopted many components of the value-enhancement set of proposals disclosed by the activist shareholder in April 2015, pointing out that the Board clearly agrees with the investment firm’s understanding of iRobot’s business. More importantly, Mr. Mesdag’s fund acknowledges that this intensifying proxy fight comes down to a single point: “Should a significant shareholder be represented in the boardroom?” Red Mountain believes that the Board “urgently requires a shareholder perspective in order to establish a culture of accountability” given the company’s disappointing track record of returns on investment. According to the most recent 13D filing, Red Mountain owns 1.78 million shares of iRobot Corporation (NASDAQ:IRBT), which account for 6.15% of the company’s shares. That total was reiterated by the firm in its latest letter to shareholders, as it claimed ownership of about 6.2% of the company’s shares. Ken Fisher’s Fisher Asset Management owns 20,733 shares of iRobot Corporation (NASDAQ:IRBT) as of March 31.