Christian Leone’s Luxor Capital has initiated a position of 1.2 million shares in Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) since the beginning of this year. The company provides services to owners and servicers of mortgage loan portfolios, with fast growing Ocwen Financial being its leading customer. Markets are expecting good earnings growth at the company, with the stock valued at 20 times its trailing earnings; however, the sell-side is even more optimistic with consensus earnings forecasts implying a forward P/E of 11 and a five-year PEG ratio of 0.3. Earnings were up 9% in Q1 2013 versus a year earlier.
Rounding out our list is Odey Asset Management’s 13G revealing a stake of 3.9 million shares in Quanex Building Products Corporation (NYSE:NX) or over 10% of the total shares outstanding. Quanex Building Products Corporation (NYSE:NX) is unprofitable on a trailing basis, and its earnings numbers for the past few quarters have missed expectations. Analysts are forecasting improved EPS at the company but the forward earnings multiple still represents a premium valuation at 35 and we think that there are probably better names for playing a rise in construction activity.
As a general rule, we think that many of these recent hedge fund picks should be avoided or at least that investors should look for better deals in the industry. Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) does look like it could offer “growth at a reasonable price”- the company is a bit dependent on one customer for our liking, but that customer has been growing rapidly itself including through acquisitions- and so we would be interested in doing further research on the company.
Disclosure: I own no shares of any stocks mentioned in this article.