With the latest round of 13F filings in the book, we’ve poured over the data disclosed by the more than 700 hedge funds that we track with the aim of identifying good investment opportunities. One of the newest data points we’ve begun to track at Insider Monkey is the overall concentration of a company’s stock held by the funds that we track. These companies tend to have smaller market caps, and we know through our research that the smart money has a history of generating better returns with their small-cap picks than they do with their large-cap picks, so we believe these stocks could be very interesting investment opportunities. The stocks in question are Sunedison Inc (NYSE:SUNE), Springleaf Holdings Inc (NYSE:LEAF), NRG Yield Inc (NYSE:NYLD), Cheniere Energy, Inc. (NYSEMKT:LNG), and Platform Specialty Products Corp (NYSE:PAH), and we’ll look at the action on each of them.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 118% and beating the market by more than 60 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Let’s start with Sunedison Inc (NYSE:SUNE), which had the highest concentration of ownership among the funds we track, at 67.37%. 93 hedge funds in our database owned $5.53 billion in shares of the company as of June 30, which now has a market cap of just $4.49 billion after a precipitous decline in the third quarter. Shares are down by a horrendous 54.96% in the third quarter, as frightened investors fled the stock over liquidity fears, despite Sunedison Inc (NYSE:SUNE) getting a $1 billion loan from a trio of banks fast-tracked. Sunedison certainly appears to be a tempting buy-low candidate at this point, though it’s proven to be an immensely disappointing investment for those with prior holdings. David Einhorn’s Greenlight Capital had the largest position among them, of over 24.84 million shares.
Let’s move on to Springleaf Holdings Inc (NYSE:LEAF), in which the funds we track held 61.87% of its shares as of June 30. 33 funds held $3.82 billion in shares as of that date, in the company now valued at $6.10 billion. The fund ownership more than doubled from the 15 funds which had positions at the end of March, though the value of their holdings actually declined from $3.97 billion, as shares fell by over 12% during the second quarter. This suggests that there weren’t a lot of big new positions among the many funds that took up investing residence in the stock, or that existing shareholders sold off a lot of their shares after the big first quarter gains. One of those new investors in Springleaf Holdings Inc (NYSE:LEAF) was billionaire Leon Cooperman, who invests primarily in companies with relatively small market caps. Cooperman’s Omega Advisors held a new position of 2.63 million shares at the end of the second trimester.
NRG Yield Inc (NYSE:NYLD) is next on our list, with the smart money we follow owning 58.09% of its shares on June 30. The ‘yieldco’ of NRG Energy Inc (NYSE:NRG), NRG Yield counted 32 hedge funds among its investors, with them hanging on to over $439 million in shares. Those figures were up from just 16 funds a quarter earlier, which held $340 million in shares. Similar to Sunedison, Both NRG Energy and its yieldco have suffered big drops in the past month, as investors have cooled to renewable energy. Among the new investors in NRG Yield Inc (NYSE:NYLD) during the second quarter were billionaires Israel Englander and Ken Griffin, the former holding 2.18 million shares on June 30.
The energy theme continues, but we now move away from renewable energy to the old-fashioned kind: extracting it from the earth. Cheniere Energy, Inc. (NYSEMKT:LNG) operates a number of liquefied natural gas (LNG) terminals and pipelines, including production of the first LNG export facility to be built in the U.S in the past 40 years. Funds tracked by Insider Monkey owned 54.95% of its shares as of June 30, with 76 funds holding $9.00 billion in shares. Those totals were actually down over the quarter, from 81 and $9.75 billion respectively on March 31. However as shares declined by over 10% during the second quarter, we can see that there was not a collective selling of shares; funds in fact added slightly more shares to their coffers. Among them was billionaire Seth Klarman, who added 11% to his holding of Cheniere Energy, Inc. (NYSEMKT:LNG), his top energy stock pick. Klarman held 15.37 million shares valued at over $1.06 billion after the latest addition.
Lastly we come to Platform Specialty Products Corp (NYSE:PAH), which was held in the portfolios of 51 funds we track, up from 38 one quarter ago. The value of their holdings also increased slightly, to $2.62 billion, giving them a 53.05% stake in the company. The specialty chemicals company has also endured a rough third quarter, dipping by 19% so far. The stock is a recent addition to Daniel Och’s portfolio, and also resides in the portfolios of notable investors Bill Ackman, John Griffin, and Keith Meister. Ackman owns 42.74 million shares of Platform Specialty Products Corp (NYSE:PAH) valued at over $1.09 billion.
Interestingly, all five of the stocks on our list are down either slightly or greatly so far this quarter. Rather than take this as a sign of bad investments, we believe all of these stocks make for great buy-low candidates and should be considered as potential additions to investors’ portfolios.