A series of 13G filings with the SEC have shown that billionaire Steve Cohen’s SAC Capital Advisors is far from idle as some outside investors seek redemptions due to the fund’s legal problems relating to insider trading investigations and charges. 13Gs are filed when a hedge fund or other major investor controls 5% of a stock’s total shares outstanding. This does mean that they only disclose positions in smaller cap stocks rather than larger cap names- Amazon (NASDAQ:AMZN) and Visa (NYSE:V) were two of SAC’s largest holdings at the end of March but the fund certainly fell far short of 5% ownership. Find Cohen’s favorite stocks from Q1.
However, we at Insider Monkey are quite interested in following what hedge funds are doing in smaller cap stocks because we believe that hedge funds have more opportunity for alpha in this area. Our strategy based on buying the most popular small cap stocks among hedge funds has outperformed the S&P 500 by 33 percentage points in the last 11 months, and our research shows that even over the long term the average excess return is about 18 percentage points per year (learn more about our small cap strategy). It’s also possible to screen individual small cap names hedge funds have been buying to see if they might be good values. Read on for our quick take on these three stocks SAC has been buying recently.
The fund now owns 5.2% of Foster Wheeler AG (NASDAQ:FWLT), a $2.3 billion market cap company specializing in engineering and construction of infrastructure facilities including for processing of oil and gas. While the business has struggled recently, leading to drops in both sales and profits in Q1 from their levels a year ago, Wall Street analysts expect the company to recover next year and so the forward P/E is 11. Investors should note that the stock’s beta is 2.1, signifying a good deal of dependence on economic conditions. Billionaire Kerr Neilson’s Platinum Asset Management reported a position of 9.8 million shares in Foster Wheeler AG (NASDAQ:FWLT) as of the end of March (check out Neilson’s favorite stocks).
Cohen and his team have increased their stake in Blue Nile Inc (NASDAQ:NILE) to a total of about 670,000 share. While the stock trades at a premium valuation of 51 times its trailing earnings during the second quarter of 2013 sales grew nearly 20% versus a year earlier and year to date Blue Nile Inc (NASDAQ:NILE)’s earnings per share doubled compared to the prior year period. We do expect earnings growth to slow as the base amount of net income increases, however, and the stock is a popular short target. Renaissance Technologies, founded by billionaire Jim Simons, initiated a position of close to 300,000 shares in the first quarter of the year (see Renaissance’s stock picks).