Editor’s note, related ticker: Health Management Associates Inc (NYSE:HMA)
There are a number of ways to keep up with stock picks from hedge funds and other major investors. Investors can get a fairly comprehensive look at their long portfolio several weeks after the end of each quarter, when hedge funds file 13Fs with the SEC, and we have found that the included information can be use to develop investing strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). The SEC also requires a shareholder to file a 13D or 13G after buying over 5% of a company’s stock (or making major changes to that position) providing us with fairly up to date information on moves that specific managers are making in specific stocks. Here are five stocks hedge funds have bought recently:
Glenview Capital, managed by Larry Robbins, has added to its position in Health Management Associates Inc (NYSE:HMA) and now owns 38 million shares of the hospital company. See more of Glenview’s stock picks. Earnings were down 39% last quarter compared to the first quarter of 2012 off of flat revenue, with adjusted earnings numbers missing analyst estimates. A rally over the last year has left Health Management Associates Inc (NYSE:HMA) fairly expensive from our point of view when recent performance is taken into account, with a trailing earnings multiple of 19; that’s a small premium to other hospital stocks.
Billionaire Steve Cohen’s SAC Capital Advisors reported ownership of 2.3 million shares of RenaissanceRe Holdings (NYSE:RNR), a property and casualty insurance company with a market capitalization of $4 billion (find Cohen’s favorite stocks). RenaissanceRe does feature some interesting valuation metrics- for example, the stock trades at 9 times forward earnings estimates- and it’s quite defensive with the stock’s beta coming in at 0.4. However, business has been down recently, and when we looked at the stock we thought that its peers might be better prospects for a value investor.
PDC Energy Inc (NYSE:PDCE) had PointState Capital disclose 1.6 million shares in a filing with the SEC. The small cap oil and gas exploration and production company, which is focused on U.S. shale plays, gets less than half of its production by energy equivalent in the form of oil but because of the spread between oil and gas prices oil is responsible for 70% of product revenue. Profits are low, and while Wall Street analysts do expect the company to recover somewhat the forward P/E looks a bit high at 25. PDC Energy Inc (NYSE:PDCE) would benefit from higher natural gas prices, but so would a number of other energy stocks.
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.