Hedge Funds Have Bought Halcon, ArthroCare, and More

Steadfast Capital Management reported owning 30 million shares of Chinese social networking software company YY Inc. (NASDAQ:YY), a recent IPO which focuses on serving gamers, performing artists, and their fans. YY is barely profitable but has been reporting rapid growth; still, the company has a slew of peers which are out of favor with the markets. Not only are companies related to Chinese gaming trading at very low multiples, but American social networking and social gaming stocks such as Facebook Inc (NASDAQ:FB) and Zynga Inc (NASDAQ:ZNGA) have been having a terrible year. We just don’t see how an even more speculative stock is a better buy than would be found in either of those categories.

Healthcare-focused fund Ayer Capital Management, which is managed by Jay Venkatesen, bought 3.7 million shares of Peregrine Pharmaceuticals (NASDAQ:PPHM), a $130 million market cap biotechnology company. Peregrine’s daily trading volume is about 8 million shares (and its current price is about $1.30 per share) so there is sufficient liquidity for investors despite its small market cap. Peregrine isn’t expected to be profitable in either the current fiscal year (which ends in April 2013) or in the fiscal year after that, and its revenue fell 25% in its most recent quarter compared to the same period in the previous year. We would avoid this stock as well.