Public SEC filings from hedge funds and other notable investors can be useful sources of investment strategies and ideas for further research. By analyzing quarterly 13F filings, for example, we have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). For more up to date information on hedge fund activity we also track 13D and 13G filings, although these only occur when a fund buys over 5% of a company’s outstanding shares or makes significant changes to that position and so these filings are much less comprehensive sources of information. Still, investors can treat them similarly to a stock screen by doing further research on any interesting names. Here are five stocks hedge funds have bought recently:
Activist investor Jeffrey Smith’s Starboard Value has- with the help of options- gained potential control of 5% of Smithfield Foods, Inc. (NYSE:SFD), with an eye towards blocking the company’s sale to Shuanghui International (find Starboard’s favorite stocks). A letter accompanying Starboard’s 13D claimed that management could create more value for shareholders by selling the company’s international operations and hog raising businesses. After subtracting out a fair valuation for those segments, the fund claimed that the market currently implicitly values the pork production business at 4 to 5 times EBITDA- about half the multiple we see at peers such as Hillshire Brands Co (NYSE:HSH) and Hormel Foods Corporation (NYSE:HRL).
Quick service restaurant Tim Hortons Inc. (USA) (NYSE:THI), which primarily operates in Canada, had Scout Capital Management- which is run by James Crichton and Adam Weiss- report a position of 8.4 million shares. This comes out to 5.5% of the $8.3 billion market cap company (see Scout’s stock picks). The stock is valued at 21 times trailing earnings as markets are generally optimistic about QSRs, even though same-store sales were down last quarter compared to the first quarter of 2012. Some activists are pressuring the company to return more cash to shareholders, but we’d still avoid the stock for now on valuation.
Luxor Capital, managed by Christian Leone and his team, have increased their stake in American Realty Capital Properties Inc (NASDAQ:ARCP) to a total of 17 million shares or over 9% of total shares outstanding. Check out more stocks Luxor owns. American Realty Capital Properties is a real estate investment trust focused on retail and office properties. Due to the nature of REITs, these stocks often pay high dividend yields and there’s no exception here with an annual yield of about 6% at current dividend levels. However, the history of paying dividends is limited and payments might fall in the event of troubles in the real estate market.
Mueller Industries, Inc. (NYSE:MLI) is another stock seeing recent hedge fund buying, with Jeffrey Gates’s Gates Capital Management disclosing ownership of 1.4 million shares (research more stocks Gates likes). The company reported a decline in both revenue and earnings in its most recent quarter compared to the same period in the previous year. After having carried out a large buyback in late 2012, earnings per share for Q1 came in at 93 cents; annualizing that gives a P/E multiple of 14. Still, we’d say that pricing incorporates an expectation that earnings will improve going forward and given current conditions we would avoid the stock.
Rounding out our list of stocks with recent hedge fund buying is $1.8 billion market cap cancer drug company Clovis Oncology Inc (NASDAQ:CLVS). Partner Fund Management owned 1.9 million shares of stock according to a filing. Clovis is unprofitable on a trailing basis, but the stock has risen over 400% in the last year as markets have become more optimistic about its products’ prospects. Still, outside of any acquisition possibilities it will take some time for the business to produce good financial results- Wall Street analysts are forecasting steep losses per share both this year and in 2014.
Disclosure: I own no shares of any stocks mentioned in this article.
