We track 13F filings from hedge funds and other notable investors as part of our work developing investment strategies; one of our findings so far has been that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). We think that this is because institutional investors and the financial media pay less attention to most small cap stocks (though some tech companies in this range are widely followed) and so hedge funds or more likely to uncover an overvalued or undervalued stock. Here are our brief thoughts on five stocks with market capitalizations between $1 billion and $5 billion which Tiger Cub Philippe Laffont’s Coatue Management owned at the end of December (or see more stocks the fund reported owning):
Coatue reported a position of 4.5 million shares in Informatica Corporation (NASDAQ:INFA), a provider of enterprise software which helps businesses integrate and manage data. The company’s stock price is down 34% in the last year, and earnings have been performing poorly as well- they fell 27% in the fourth quarter of 2012 versus a year earlier. The sell-side expects net income to improve, but at a forward P/E of 21 we don’t think that Informatica is a good value. Billionaire and fellow Tiger Cub Stephen Mandel’s Lone Pine Capital initiated a position of 1.9 million shares during Q4 (check out Mandel’s stock picks).
Laffont and his team disclosed ownership of 1.9 million shares of The Hain Celestial Group, Inc. (NASDAQ:HAIN), whose packaged food products focus on natural and organic foods. These are two strong segments of the food market, and buoyed by recent acquisitions the company has been reporting strong growth in its financials. However, the stock is expensive- it trades at 30 times trailing earnings- and Hain is a popular short target. Hain Celestial is one of Carl Icahn’s picks, with the billionaire activist investor holding 7.2 million shares at the end of December (find Icahn’s favorite stocks).