Billionaire Paul Singer’s Elliott Management Bought Hess Corp. (HES), Sold Brocade Communications Systems, Inc. (BRCD) During Q1

Earnings Analysis: Hess Corp. (NYSE: HES)Elliott Management, a hedge fund managed by billionaire Paul Singer since its founding in 1977, has filed its 13F for the first quarter of 2013 (see the filing on the SEC’s website). These filings disclose many of a hedge fund or other major investor’s long equity positions as of the end of a quarter; there are a few different ways for investors to use this information. For one, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year, and we’d guess that other strategies are possible as well. We can also use our database of 13F filings to see what Singer and his team were buying and selling last quarter by comparing their picks to those in previous filings; while blindly following billionaire fund managers isn’t always wise, we think that 13Fs can be a potential source of investment ideas. Here are three trades that Elliott was making between January and March:

Hess. Singer increased the size of his position in Hess Corp. (NYSE:HES) to a total of about 17 million shares- over ten times as many as his fund had owned at the beginning of 2013. Elliott had been trying to push the oil and gas company into divesting its downstream operations in order to focus on exploration and production activities (which Hess Corp. (NYSE:HES) has been doing) and also fighting with the company for control of the Board of Directors (in a recent deal, the fund will gain three Board seats in exchange for dropping its proxy fight). Currently Hess trades at 12 times forward earnings estimates, which while low in absolute terms would actually represent a small premium to many oil majors.

Paul Singer ELLIOTT MANAGEMENTDumping Brocade. According to the 13F, the fund sold all its shares of Brocade Communications Systems, Inc. (NASDAQ:BRCD) after the $2.5 billion market cap networking and data storage systems company had been one of its top picks during Q4. Brocade Communications Systems, Inc. (NASDAQ:BRCD) has often been thought of as a potential acquisition, but the company’s new CEO has, at least publicly, rejected the idea of selling. While Wall Street analysts like the business- their forecasts for the fiscal year ending in September 2014 imply a forward P/E of only 8- these projections are highly dependent on earnings growth as trailing earnings per share is currently well below what the sell-side is expecting going forward. Revenue was up only 5% in Brocade Communications Systems, Inc. (NASDAQ:BRCD%2