Elite Hedge Funds Making Moves in These Three Stocks

Most investors monitor hedge funds’ 13F filings in order to identify high-potential stocks, and our research has provided evidence that these public filings bury inside numerous stock winners indeed. However, there is a camp of stock market participants that doubts the usefulness of these delayed filings. If one resides this camp of skeptics, he/she can turn his/her attention to the spontaneous 13G and 13D filed with the SEC. The likelihood of stumbling upon great stock picks in these filings is very high, and there is even a mutual fund (13D Activist Fund that tracks activist investors) proving that hedge funds do have strong stock picking skills.

Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 53 percentage points, returning over 102% (read more details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.

According a freshly-submitted 13D filing with the SEC, biotech-focused Baker Bros. Advisors LP, founded by Julian and Felix Baker, currently owns a stake of 14.33 million shares in BioCryst Pharmaceuticals Inc. (NASDAQ:BCRX). This compares to the 11.58 million-share position revealed via the June round of 13F filings. The recently-upped stake accounts for a whopping 19.5% of the biotech’s outstanding shares. As stated by the aforementioned public filing, Baker Bros. Advisors, which holds these shares for investment purposes only, might make suggestions to the company’s management regarding financing, but may also change their present intentions. It appears that this activist filing stands behind the stock’s surge of more than 4% in Friday’s post-market trading session. Meanwhile, the drug maker that develops novel small molecule drugs aimed at blocking key enzymes involved in rare diseases has seen its shares drop 24% year-to-date.

The biotech stock received more attention from the hedge funds monitored by the Insider Monkey team during the second quarter. The number of hedge funds invested in BioCryst Pharmaceuticals Inc. (NASDAQ:BCRX) increased to 25 from 16 quarter-over-quarter, accumulating 31.80% of the company’s shares. Similarly, the value of their investments increased to $343.28 million from $234.51 million during the three-month period. Peter Kolchinsky’s RA Capital Management held a 2.61 million position in BioCryst Pharmaceuticals Inc. (NASDAQ:BCRX) at the end of the second quarter.

The next page of the article reveals two other moves made by Atlantic Investment Management and Ashe Capital Management LP.

A recently-amended 13D filing disclosed that Atlantic Investment Management, founded by Alexander J. Roepers, owns 3.46 million shares in Triumph Group Inc. (NYSE:TGI), which aggregately account for 7% of the company’s outstanding shares. This denotes a decrease of 771,274 shares from the investment firm’s position in the company disclosed via the 13F filing for the June quarter. The shares of the supplier of aerospace components and systems are 34% in the red year-to-date and are trading quite cheaply if considering its trailing P/E ratio of only 12.96, compared to the ratio of 23.41 for the S&P 500. In mid-September, Boeing Co (NYSE:BA) announced that it would build in house some parts of its 747-8 jumbo jetliner, after terminating an agreement with Triumph Group Inc. (NYSE:TGI). Just recently, Triumph announced the acquisition of provider of thermal management systems and auxiliary power generation systems Fairchild Controls Corporation from Airbus Defense and Space; an acquisition that is anticipated to generate additional annual revenues of $45.0 million.

The number of hedge funds with positions in Triumph Group climbed to 30 from 27 during the second quarter, while the value of these positions increased to $672.05 million from $575.64 million. The hedge funds tracked by our team amassed almost 21% of the company’s shares at the end of the second quarter. Joel Greenblatt’s Gotham Asset Management was the second-largest equity holder of Triumph Group Inc. (NYSE:TGI) among them at the end of the second quarter, holding a 1.07 million-share stake.

As stated by a 13D filing with the SEC, Ashe Capital Management LP, founded by William Charles Crowley, William Richard Harker, and Stephen Michael Blass, currently owns 9.36 million shares in Allison Transmission Holdings Inc. (NYSE:ALSN), representing 5.5% of the company’s shares. The investment firm disclosed an ownership stake of 6.53 million shares in its 13F filing for the second quarter. At the same time, the public filing disclosed that Ashe Capital Management acquired the shares of the manufacturer of commercial duty automatic transmissions and hybrid propulsion systems, believing that they represented an attractive investment opportunity at the time of purchase. The filing also reveals that William Charles Crowley discussed with the company’s Chairman Lawrence E. Dewey at the end of October, requesting the Chairman to “convey to the Board the Reporting Persons’ request that Mr. Crowley, Cofounder and CEO of Ashe, be appointed to the Board”. In the meantime, shares of Allison Transmission Holdings Inc. (NYSE:ALSN) are currently trading at a trailing P/E ratio of 22.76, which might suggest that they do not have too much upside potential. However, its forward P/E ratio of 10.50 might point to a strong stock performance in the months and years ahead (the ratio for the S&P 500 stands at 17.65).

Even so, the shares of the company are down 17% year-to-date, which might have propelled some hedge fund investors to abandon their positions in the company. 40 hedge funds observed by our team owned the stock at the end of the second quarter, compared to 43 registered in the prior one. These money managers stockpiled 33.80% of the company’s shares on June 30, while the value of their stakes decreased to $1.78 billion from $2.11 billion quarter-over-quarter. Jeffrey Ubben’s ValueAct Capital was bullish on Allison Transmission Holdings Inc. (NYSE:ALSN) at the end of the second quarter, owning 19.13 million shares.

Disclosure: None