Billionaire Paul Singer Buying Alcoa Inc. (AA), North Tide Capital Selling Amedisys Inc. (AMED), Plus Two Other Moves

Just recently, Bank of America revealed that hedge funds had been net buyers of equities during the first trading weeks of 2016, whereas the Wall Street Journal wrote that numerous hedge funds had been “stockpiling cash” in anticipation of more downside. That does not necessarily mean that one of the two statements is erroneous, as hedge funds might have different perceptions on where U.S equities are heading. As part of a broader stock analysis process, examining hedge funds’ moves may offer interesting insight about certain companies. Imagine that a hedge fund acquires more shares of a company that you were thinking of shorting, which could make you think outside the box and study the company in a new light, allowing you to identify strong reasons for not going short (certain filings explicitly reveal hedge funds’ reasoning behind particular investment decisions). Having said that, the following article will discuss several filings submitted with the SEC by Conan Laughlin, Paul Singer, and other hedge fund managers.

Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details here).

Let’s begin our discussion by looking into the 13G filing submitted by Peter S. Park’s Park West Asset Management, which discloses a new position of 904,600 shares in Sientra Inc. (NASDAQ:SIEN). The freshly-initiated position accounts for 5.0% of the company’s outstanding shares. The medical aesthetics company has seen its shares decline by 45% over the past year, mainly owing to the suspended distribution of the company’s Silimed products by the U.K’s Medicines and Healthcare products Regulatory Agency. The company’s primary products include silicone gel breast implants. Meanwhile, the aforementioned suspension followed an inspection at Silimed’s manufacturing facilities in Brazil by a notified body under EU regulation, which found some issues relating to particles discovered on breast implants. Sientra Inc. (NASDAQ:SIEN)’s net sales for the first nine months of 2015 totaled $36.57 million, up from $32.62 million reported for the same period of 2014. However, it remains to be seen how the recent events concerning Silimed will impact the company’s top-line results in the upcoming quarters. Ten hedge funds from our system had positions in the company at the end of the September quarter, amassing 38.20% of its outstanding common stock. Jacob Gottlieb’s Visium Asset Management reported owning 1.78 million shares of Sientra Inc. (NASDAQ:SIEN) through its 13F for the third quarter.

Let’s head to the next two pages of this article, where we discuss the remaining filings under question submitted with the SEC.

As stated by a 13D filing, Paul Singer’s Elliott Associates L.P. and its affiliates have combined economic exposure to roughly 7.4% of Alcoa Inc. (NYSE:AA) shares. These entities own 82.60 million shares of Alcoa, which include 8.0 million shares underlying exercisable options, and have additional economic exposure to 1.1% of shares in the form of cash settled swaps with respect to 15.0 million shares. This compares with the economic exposure to 6.4% of shares as revealed via Elliott’s initial 13D filing on the company, which was filed in November. The activist hedge fund mentioned in the filing that Alcoa’s shares “are dramatically undervalued by the public market” and also expressed its support for the firm’s decision to split into two companies. Let us remind you that the aluminum producer announced its plans to separate into two independent companies back in September, one of which will comprise the Alumina and Primary Metals segments, while the other one will comprise the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions segments. Alcoa Inc. (NYSE:AA) plans to complete the aforementioned separation in the second half of 2016. The company reported sales of $17.29 billion for the nine months that ended September 30, down from $17.53 billion reported for the same period a year earlier. The decrease was mainly attributable to closed, sold or curtailed capacity in midstream and upstream operations, lower realized prices for aluminum in both upstream and midstream operations, and unfavorable currency fluctuations. The shares of Alcoa have lost 57% over the past one-year period and trade at a forward price-to-earnings ratio of 11.91, which is well below the average of 15.38 for the S&P 500 companies. Seth Klarman’s Baupost Group acquired a 52.27 million-share stake in Alcoa Inc. (NYSE:AA) during the third quarter.

In a Schedule 13G filing, John A. Levin‘s Levin Capital Strategies L.P. reported owning 4.34 million shares of Amplify Snack Brands Inc. (NYSE:BETR), which constitute 5.8% of the company’s outstanding shares. The investment firm owned nearly 1.92 million shares of the snack food company at the end of September, as revealed by the fund’s 13F for the third quarter. The high-growth snack food company completed its initial public offering in August 2015, when a group of stockholders sold 15.0 million shares to the public at a price of $18 per share. The stock has lost 16% over the past three months, but several financial hubs, including Jefferies, believe that the stock is poised to advance in the near future. Analysts anticipate Amplify Snack Brands Inc. (NYSE:BETR) to deliver $0.59 in earnings per share for fiscal year 2016, but it is still premature to conclude whether the company will be able to grow at a pace that should attract investor interest. 13 hedge funds tracked by Insider Monkey bought shares shortly after the IPO, being invested in the company at the end of September, and stockpiling nearly 10% of its shares. Christian Leone’s Luxor Capital Group owns 2.38 million shares of Amplify Snack Brands Inc. (NYSE:BETR) as of September 30.

Lastly, according to a freshly-amended 13G filing, Conan Laughlin’s North Tide Capital LLC ceased to own more than 5% of Amedisys Inc. (NASDAQ:AMED)’s shares. The filing discloses an ownership stake of 1.52 million shares, which account for 4.5% of the company’s outstanding common stock. This compares to ownership of 4.00 million shares that North Tide Capital declared through its 13F filing for the September quarter. The multi-state provider of home health and hospice services has seen its shares advance by 29% over the past year despite encountering problems with its proprietary operating system AMS3. At the beginning of 2015, Amedisys Inc. (NASDAQ:AMED)’s beta testing efforts revealed that AMS3 was disruptive to operations, so the company decided to use another platform for home health and hospice companies called Homecare Homebase (HCHB). Hence, Amedisys anticipates an increase in operating costs associated with the implementation of HCHB, while the transition is expected to be completed in the first half of 2017.

Nonetheless, the company has experienced solid top-line growth in recent quarters, with its net service revenue for the nine months that ended September 30 increasing to $942.2 million from $904.0 million generated for the same period a year ago. It should also be mentioned that roughly 80% of the company’s revenue is derived from Medicare. Amedisys strives to grow its same store Medicare admission volumes and enhance its operating efficiency, the former of which appears to be an attainable task considering the aging U.S population. A total of 24 smart money investors from our system had stakes in the company at the end of the third quarter, amassing 17.50% of its shares. Israel Englander’s Millennium Management cut its stake in Amedisys Inc. (NASDAQ:AMED) by 49% during the third quarter to 283,357 shares.

Disclosure: None