Hedge Funds Have Bought Yelp, SandRidge, and More

Page 2 of 2

SAC has been quite busy in the past couple weeks, with yet another filing reporting 5% ownership of LogMeIn Inc (NASDAQ:LOGM), a remote access software company with a market capitalization of about $440 million (with an average of over 400,000 shares traded per day and a current price of over $17, there is plenty of dollar volume for most investors). The sell-side is expecting high growth at LogMeIn, but even their forecasts imply a forward P/E of 23 and in its most recent quarter net income only increased 9% compared to the same period in the previous year.

Steadfast Capital Management, managed by Robert Pitts, has gotten back into Yelp Inc (NYSE:YELP) after buying shares last fall but selling most of them by the end of December. It now owns 1.3 million shares of the business reviews website, giving it 5.4% of the total shares outstanding. Yelp grew its revenue by 65% in 2012 compared to 2011, but the company remained unprofitable. Current analyst expectations are that Yelp will also see net losses this year and earnings per share in 2014 will be quite low compared to the current market price. As such we don’t think that it is a good buy.

Mount Kellett Capital Management, which has been one of the leading activists in the battle for control of SandRidge Energy Inc. (NYSE:SD), had bought 3 million shares of the stock and now owns over 25 million shares. The fund and its associates have reached an agreement with the company to either replace controversial CEO Tom Ward or take majority control over the Board of Directors (and therefore exert more control over SandRidge). The natural gas producer is expected to be unprofitable this year ad next year as aggressive expansion has been met by low natural prices.

LogMeIn and Yelp don’t look like good values, with analyst expectations placing the stocks at very high valuations; investors should think twice before shorting, however, given the possibility of acquisition. SandRidge and Walter are falling short in terms of being profitable at all, and with both businesses dependent on commodity prices we would avoid them for now (in addition, we doubt that each is the best pick in its respective industry). Carter’s does look interesting but other apparel companies seem like better prospects.

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

Page 2 of 2