Hedge Funds Have Bought WebMD Health Corp. (WBMD), VIVUS, Inc. (VVUS), and More

The most comprehensive look at hedge fund activity comes in the form of quarterly 13F filings, which disclose many of a fund’s positions as of the end of the quarter. However, these filings quickly become somewhat out of date (the most recent ones are for the end of March) even though we’ve actually found that they can be used to develop investment strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). We can also get more up-to-date information about how hedge funds are trading a small number of stocks through 13D and 13G filings, released when a hedge fund owned over 5% of a company’s outstanding shares. Read on for five stocks that hedge funds have been buying recently.

Billionaire Steve Cohen’s SAC Capital Advisors reported ownership of 2.6 million shares of WebMD Health Corp. (NASDAQ:WBMD) or 5.2% of the company (see Cohen’s stock picks). WebMD Health Corp. (NASDAQ:WBMD), as with many other Internet companies, has very low earnings relative to its valuation; it’s only in the Q2 guidance that management has suggested they expect the business to turn a profit. Wall Street analysts project 22 cents in earnings per share in 2014, making for a forward earnings multiple of over 80. With current revenue growth numbers fairly low, we are skeptical the company can grow fast enough to justify its valuation.

Daniel Gold’s fund QVT Financial, which tends to invest about half of its capital in healthcare stocks, disclosed ownership of 8.3 million shares of VIVUS, Inc. (NASDAQ:VVUS). VIVUS, Inc. (NASDAQ:VVUS) is developing a weight loss drug, Qsymia, but concerns over its safety as well as how the drug will compete with Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)’s offering have worried the market. VIVUS, Inc. (NASDAQ:VVUS)’s stock price is down 38% in the last year, and according to the most recent data 33% of the float is held short. As a development stage company the company is not expected to deliver positive earnings this year or next year. Find QVT’s favorite stocks.

Generation Investment Management, managed by David Blood and Al Gore, reported a position of 4.4 million shares in Henry Schein, Inc. (NASDAQ:HSIC), a $9 billion market cap medical equipment company. Research more stocks Generation owns. Henry Schein, Inc. (NASDAQ:HSIC) grew its revenue by 9% in Q1 2013 versus a year earlier, with growth being led by the animal health segment. However, if we add back some restructuring charges the company took in the prior year period we see little change in pretax income, showing that cost growth is eating up nearly all this increase. At 23 times trailing earnings the stock doesn’t seem attractive on a value basis.

Blount International Inc (NYSE:BLT) is another stock seeing hedge fund buying with Claus Moller’s P2 Capital Partners increasing its stake to over 10% of the company (check out more stocks in Moller’s portfolio). Blount International Inc (NYSE:BLT) provides forestry, lawn, and garden equipment. Analysts see it as a potentially undervalued company, with the stock trading at only 11 times forward earnings estimates and at a five-year PEG ratio of 0.9. Profits rose strongly in its last quarterly report compared to the first quarter of 2012, though revenue growth was more modest and so we’d expect earnings growth to be in the single digits as well going forward.

PAR Capital Management added shares of POZEN Inc. (NASDAQ:POZN) and at 3.4 million shares now owns over 10% of the company. POZEN Inc. (NASDAQ:POZN) is a $170 million market cap drug developer (on average over 200,000 shares are traded per day, so at the current price of $5.50 there is over $1 million in daily dollar volume) focused on treatments for pain. The sell-side expects the company to begin bringing in profits next year, with two forward estimates averaging out to 22 cents per share (or a forward P/E of 25). Markets have actually been somewhat skeptical of the company with the stock price falling 14% in the last year.

Disclosure: I own no shares of any stocks mentioned in this article.