Big Investors Are Buying Aeropostale Inc (ARO), News Corp (NWSA) & More
The most comprehensive look at the portfolios of hedge funds and other major investors comes in the form of quarterly 13Fs, which we use to help us develop investment strategies. 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; we used this theory to develop an investment strategy in the summer of 2012 which has since beaten the S&P 500 by 29 percentage points. Check out more details about our small cap strategy. Large investors are also required to file 13Ds or 13Gs with the SEC shortly after taking a 5% stake in a company, providing relatively up-to-date stock picks which retail investors can skim for interesting ideas. Read on for our quick take on five stocks which the filers we track have bought recently.
Southeastern Asset Management, a mutual fund managed by billionaire Mason Hawkins, has reported a position of 24 million shares in News Corp (NASDAQ:NWSA). Many value investors like to invest in spinouts on the theory that management becomes better able to focus on the company’s operations (learn more about investing in spinouts) and had been buying pre-breakup News Corp (NASDAQ:NWSA) stock on the theory that the division into “new” News Corp and Twenty-First Century Fox Inc (NASDAQ:FOXA) was a similar situation. At current prices News Corp (NASDAQ:NWSA) is valued at 35 times expected earnings for the current fiscal year.
Patrick McCormack’s Tiger Consumer Management, one of the “Tiger Cub” hedge funds, now owns over 8% of Aeropostale Inc (NYSE:ARO). See Tiger Consumer's stock picks. After a plunge in the stock price in August following an earnings miss, Aeropostale Inc (NYSE:ARO) is down more than 30% year to date. The most recent data shows 23% of the float held short. Wall Street analyst consensus is that the company will be unprofitable this year and see essentially zero profits in the fiscal year ending in January 2015. The current market cap is about $700 million, though Aeropostale Inc (NYSE:ARO)’s most recent report shows $100 million in cash.
Another apparel retailer which has been getting some interest is Finish Line Inc (NASDAQ:FINL), with billionaire Ken Griffin’s Citadel Investment Group disclosing ownership of 2.5 million shares (find Griffin's favorite stocks). It’s a somewhat popular short target as well, as rising SGA expenses have caused the company’s earnings to drop despite the fact that revenue grew 10% in its most recent quarter compared to the same period in the previous fiscal year. It currently trades at 17 times trailing earnings, so markets are counting on a recovery on the bottom line. We’d note that the beta is only 0.5, which seems low for the industry.
Brian Taylor’s Pine River Capital Management has increased its stake in $1.5 billion market cap television station owner Belo Corp (NYSE:BLC) to 6.6% of the company (research more stocks Taylor likes). Pine River is attempting to block Gannett Co., Inc. (NYSE:GCI)’s takeover of Belo, arguing that the current offer undervalues the business. The current terms value the company at 13 times expected earnings for 2014, though we would note that both sales and net income have been down according to recent reports. Belo’s stock price has fallen 2% on news of significant shareholder opposition to the deal, though it is uncertain if there is enough support to block a transaction.
Select Equity Group, managed by Robert Caruso and his team, own close to 12% of PBF Energy Inc (NYSE:PBF), an $880 million market cap petroleum products refining company (over 1 million shares are traded per day on average). With investors not being too optimistic on downstream oil and gas companies, the forward P/E is only 7 with a five-year PEG ratio of 0.8. However, PBF has been missing earnings in recent quarters and sales fell 8% in the second quarter of 2013 versus a year earlier as well. Short sellers’ positions account for 24% of the stock’s float.
Disclosure: I own no shares of any stocks mentioned in this article.