Hedge funds and other major investors shouldn’t be followed blindly, but we think that it can be useful to see what stocks these investment managers like and treat them as suggestions- much like the results of a stock screen. Investors can take a quick look at their picks and decide whether or not they are worthy of further analysis. We have gone through recent 13D and 13G filings (which disclose large positions, or changes to large positions, relatively recently after they occur) from our database of notable investors and here is our quick take on five stocks that hedge funds have bought recently:
Billionaire Steve Cohen’s SAC Capital Advisors has disclosed that it owns 6.3 million shares of Starz (NASDAQ:STRZA), which represents nearly 6% of the total shares outstanding. See more of Cohen’s stock picks. The company’s premium subscription TV channels include Starz and Encore. Some commentators have suggested that the newly independent Starz will be an attractive acquisition target; peers HBO and Showtime are owned by Time Warner Inc. (NYSE:TWX) and CBS Corporation (NYSE:CBS), respectively. The current market price represents a multiple of 9 to analyst earnings consensus for 2013. Gates Capital Management recently reported a large position in Starz as well.
Iridian Asset Management, a fund which is co-managed by David Cohen and Harold Levy, has continued adding to its position in specialty chemicals company W.R. Grace & Co. (NYSE:GRA), whose primary products are catalysts used to produce transportation fuels. The current stake of 4.5 million shares- a 67% increase from the end of September, which in turn represented significant buying in Q3- should make the stock one of Iridian’s top holdings. Find more of Iridian’s favorite stocks. W.R. Grace reported lower sales and net income in the third quarter of 2012 than a year earlier, and the stock currently trades at 21 times trailing earnings. We don’t think that it is a good buy right now.
Iridian was also buying another stock tied to energy:
Iridian has also reported that it added shares of Dresser-Rand Group Inc. (NYSE:DRC), a $4.6 billion market cap manufacturer of equipment and machinery whose products are also used in the energy business. The fund now owns 4.6 million shares of that stock, or 6.1% of the company. While business has been about flat over the last year, the financial community is predicting strong growth for Dresser-Rand: the trailing P/E is 28, but the earnings multiple based on estimates for 2013 is only 17 and the five-year PEG ratio is 0.7. We would be interested in learning more about the company.
Columbus Circle Investors, an asset manager with $17 billion under management including about $1 billion in its hedge funds, owns 1.3 million shares of business software company Procera Networks, Inc. (NASDAQ:PKT). Check out Columbus Circle’s stock picks. Procera’s market cap of about $330 million (on average, over 300,000 shares are traded per day) places it at 31 times consensus earnings for 2013, but the company has been reporting strong growth on both top and bottom lines (sales and earnings were each up about 30% in its most recent quarterly report compared to the same period in 2011) and it has over $100 million in cash on its balance sheet.
Chatham Lodging Trust (NYSE:CLDT), a real estate investment trust which invests in hotels and motels, had Parag Vora’s HG Vora Capital Management report a 7% stake in the company (or 1.3 million shares). Chatham has a market capitalization of about $220 million, with an average of about 110,000 shares traded per day and a current market price of over $15.50; this should give it sufficient dollar volume for most investors. As an REIT it tends to pay high dividend yields, and appears to currently be making quarterly payments of 20 cents per share. That would imply a dividend yield of just over 5%. Real estate investment trusts receive favorable tax treatment conditional on distributing a large portion of their income to shareholders.
Disclosure: I own no shares of any stocks mentioned in this article.
