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Hedge Funds Have Bought Halcon, ArthroCare, and More

We like to track hedge fund filings because even though hedge fund managers are buying so many stocks that an investor can’t copy them in every case, the views of these investors are still useful in identifying companies or industries for further research. As such, filings can act similarly to a screen. 13D and 13G filings are issued fairly closely to when a fund makes a transaction, and so serve as a fairly up-to-date picture of a specific manager’s view on a specific stock. The downside is that a fund generally must own 5% or more of the outstanding shares in order to be required to file, so it’s rare to see a larger-cap stock in a filing; of course, mid-cap and small-cap stocks are arguably where it’s most useful to have the input of these managers and their investment teams. Here are some stocks that hedge funds have been buying recently:

Steven Cohen

Billionaire Steve Cohen’s SAC Capital Advisors reported ownership of 1.6 million shares of ArthroCare Corporation (NASDAQ:ARTC), a medical device company. SAC’s 13F filing for the third quarter showed the fund owning about 400,000 shares at the end of September (check out Cohen’s latest stock picks). ArthroCare’s business appears to be steady, with an increase in earnings in its most recent quarter primarily due to lower special charges than in the third quarter of 2011, and the stock trades at 22 times forward earnings estimates. When we had looked at the company compared to its peers, we had decided that larger medical device companies like Medtronic, Inc. (NYSE:MDT) and Stryker Corporation (NYSE:SYK) looked like better buys (see our analysis of ArthroCare and its peers).

Citadel Investment Group, managed by billionaire Ken Griffin, had owned almost 9 million shares of Halcon Resources Corp (NYSE:HK) at the end of the third quarter (find Ken Griffin’s favorite stocks) and bought more shares over the next two months, recently owning just over 11 million shares. Halcon is an oil and gas company and has been experiencing dramatic increases in production over the last year, resulting in a large rise in revenue. Operating income is down, at least for now, as the increased production as also resulted in higher costs. We’d note that several insiders bought the stock in November, and studies show that on average insider purchases- particularly when a consensus of insiders buy- are good signs for a stock (read more about studies on insider trading). Still, we’d hesitate to buy Halcon rather than more mature oil and gas companies.

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