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What Smart Hedge Funds are Buying and Selling for Early 2013

Equity markets are continuing to have an excellent run in 2013. Year-to-date, the S&P 500 has gained 6.45% and crossed the psychological 1,500 mark.

Stocks have been driven higher by some solid U.S. economic data. Recent data from the world’s largest economy has shown signs of continuing improvement. Although there were concerns over the sequester, which took effect on March 1, many analysts say that it won’t have much of an impact on the economy. So, if the economy continues to improve, one can expect investors to continue to pour money into risk assets.

While stocks are at multi-year highs, there are still some attractive valuations out there. Also, there may be some stocks that are expected to underperform the market. One way of finding such stocks is through keeping an eye on what big investors such as Warren Buffett, Carl Icahn and David Einhorn are buying and selling.

Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A) filed its 13F for the fourth quarter of 2012 with the Securities and Exchange Commission (SEC) last month.

The 13F filing showed that Buffett raised his stake in dialysis services provider DaVita Healthcare Partners Inc. (NYSE: DVA).Shares of the Denver, Colorado-based company have gained 8.59% so far this year, outperforming the S&P 500. Buffett’s firm first bough DaVita shares in the fourth quarter of 2011, and since then has raised its stake for four straight quarters.

Berkshire Hathaway also raised its stake in General Motors Company (NYSE: GM), the Detroit, Michigan-based automaker, according to the 13F filing. The investment firm boosted its stake by two-thirds in the fourth quarter of 2012. GM shares had an excellent run in 2012; however, the stock’s performance so far this year has been disappointing. Year-to-date, GM shares have fallen 5.62%.

Berkshire Hathaway also raised stake in National-Oilwell Varco Inc. (NYSE: NOV) and Precision Castparts (NYSE: PCP). Archer Daniel Midland Company (NYSE: ADM) and VeriSign Inc. (NASDAQ: VRSN) were the investment firm’s biggest new holdings during the fourth quarter of 2012.
Year-to-date, ADM shares have gained 16.46%. VeriSign shares have gained 18.64% for the year so far.
The 13F filing for the fourth quarter of 2012 made by activist investor Carl Icahn showed no major changes compared to the previous quarter. Icahn did open a new position in Transocean Ltd. (NYSE: RIG). However, he had already disclosed this stake in a separate filing made with the SEC in January this year. The billionaire investor has a 5.9% stake in Transocean. Icahn would be pleased with the performance of Transocean this year. Year-to-date, shares of the oil services and equipment company have gained 16.77%.

Greenlight Capital, the hedge fund run by value investor David Einhorn, also made its 13F filing last month. The filing showed that Greenlight raised its stake in technology giant Apple Inc. (NASDAQ: AAPL). In the fourth quarter of 2012, Apple shares had fallen sharply. The downward trend has continued in the first two months of 2013. Year-to-date, Apple shares have fallen 19.11%. In the last six months, the stock has fallen 36.22%. Despite the sharp decline, Einhorn, obviously, sees great value in Apple.
The filing also showed that Greenlight added to its position in Marvell Technology Group Ltd. (NASDAQ: MRVL), a fabless semiconductor provider of application-specific standard products. MRVL shares have done well so far this year. The stock has gained 41.45%, year-to-date, which makes it one of the best performing technology stocks.
Greenlight, meanwhile, closed its position in Genworth Financial Inc. (NYSE: GNW), according to the SEC filing. Year-to-date, GNW shares have gained 13.45%.

13F filing made by Seth Klarman’s The Baupost Group, a hedge fund, showed that the fund had a significant stake in insurer American International Group Inc. (NYSE: AIG). AIG, which was bailed out with taxpayers’ money at the peak of the financial crisis in 2008/2009, has had a decent run so far this year. The stock has gained 7.22%, year-to-date, which is better than the S&P 500’s performance so far this year.
While Klarman is bullish on AIG, he is bearish on PC maker Hewlett-Packard Inc. (NYSE: HPQ).This is not surprising given the fact that PC makers Hewlett-Packard and Dell Inc. (NASDAQ: DELL) have been struggling due to weakness in PC market. The 13F filing showed that Baupost sold its entire stake in HPQ during the fourth quarter of 2012. Year-to-date, HPQ shares have gained 1.82%. In the last one year, the stock has fallen 20.42% even as the S&P 500 has gained 10.84%.

Brookside Capital’s 13F filing showed that the hedge fund is bullish on Express Scripts Holding Company (NASDAQ: ESRX). ESRX was one of Brookside’s largest position at the end of the fourth quarter. Year-to-date, ESRX shares have gained 6.22%.
In the retail sector, Brookside is bullish on Dollar General Corp. (NYSE: DG).The fund held 5.3 million shares in Dollar General at the end of the fourth quarter. Dollar General shares have had a decent run so far this year, gaining 7.89%. Rival Family Dollar Stores Inc. (NYSE: FDO) has fallen 7.44%, while Dollar Tree Inc. (NASDAQ: DLTR) has gained 13.67%, in the same period.
The 13F filing also showed that Brookside opened a new position in AutoZone Inc. (NYSE: AZO). The fund bought approximately 600,000 shares of AutoZone during the December quarter. Year-to-date, AutoZone shares have gained 6.69%.

Finally, Bill Ackman’s Pershing Square Capital Management also filed its 13F with the SEC last month. The filing showed that Pershing Square’s top holdings were Canadian Pacific Railway Limited (NYSE: CP), Procter & Gamble Company (NYSE: PG), and General Growth Properties Inc. (NYSE: GGP).
CP shares have had an excellent run so far this year, gaining 21.04%. The stock currently has a dividend yield of 1.11%. PG shares have gained 12.14% so far this year, and currently have a dividend yield of 2.95%. GGP, meanwhile, has fallen 0.35%, year-to-date. The REIT currently has a dividend yield of 2.43%.

Pershing Square sold its entire stake in Alexander & Baldwin Inc. (NYSE: ALEX) during the fourth quarter.