3 Stocks Being Bought by Hedge Funds
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the ways that retail investors can even out the flow of information is by following what hedge funds are investing in. A popular way to do this is to follow the 13F reports filed each quarter. And while just blindly following what the big funds are buying is probably not the best idea, adding it as one of your criteria might be a prudent move. Below are three companies that meet the following criteria:
- Trading within 5% of a three month high
- Have had 5% or 5 million shares of their public float acquired by hedge funds during the most recent quarter
Facebook is one of the largest social networking sites in the world. It relies heavily on its technical prowess to keep users interested and involved. The company is constantly focusing on the next greatest innovation to further their business model and drive revenue.
Facebook has seen two large hedge funds acquire shares in the company over the past quarter. Tiger Global Management, an $8 billion fund run by Chase Coleman, acquired 9.8 million shares of Facebook. This makes their total position in Facebook 11.8 million shares. Additionally, Paul Tudor Jones acquired 100,000 shares during the same period as Tiger Global.
Technically speaking, the stock has been on absolute tear of late. The company traded at a three month high and its highest point since its IPO earlier this year. The company has recouped a lot of the losses suffered by investors earlier and as the chart below shows, there are no signs of the technical momentum slowing down.
The rapid appreciation in share price is likely due to a few reasons, including growing users, future revenue opportunities, and projected growth rates. Wall Street analysts are projecting that Facebook will be able to grow its revenue at 30% a year for the next five years. Additionally, it is projected that the firm will be able to maintain net income margins of at least 30%.
In addition to the strong projections for growth, the mobile future is becoming clearer. Facebook appears to be generating momentum here as demonstrated by the figures provided by analyst Benedict Evans. Facebook now has over 192 million monthly active users through its Android application. This number tripled from September 2011 to November 2012.
Also, the analyst community seems to be increasing its expectations for Facebook's revenues for the upcoming earnings release on Jan. 30. As seen in this article, the revenue expectation currently sits at $6.53 billion, up from the summer lows of $6.28 billion.
Now while all of the above sounds great and seems to indicate Facebook may continue heading higher, it is important to note some of the risks facing the company. First, the company currently has a market capitalization of just under $63 billion. This is primarily based on the future expectations for the company and that it will be able to generate new streams of revenue and earnings. Based on what the company earns today, the market cap is not justified. And secondly, as the price heads higher, investors who were unfortunate enough to buy at the IPO price, may consider selling their shares to limit the losses suffered. This may add short term pressure to the share price.
LinkedIn is one of the largest social networking sites around, focused primarily on professionals looking to network across industries. It serves as a great introduction to meeting like minded professionals, to discuss career and business opportunities.
During the most recent quarter, net institutional purchases came in at 7.5 million shares, which accounts for just under 9% of the company's total float.
As shown in the chart below, the stock has had a nice run since the early part of November. It currently trades fairly close to its three month high.
LinkedIn appears to be seeing strong momentum heading into upcoming earnings report scheduled for Feb. 7. The company just announced that it has reached 200 million users worldwide and new users are being acquired at two per second. That is a most impressive acquisition rate for a company that focuses on a niche market. Since the company only had 100 million members about 18 months ago, the company has basically doubled its reach during that time.
If you combine the membership announcement with the company's strong third quarter earnings report, the pieces seem to be coming together despite the company's rich valuation. During the last quarter, the company reported that its revenue came in at $252 million, an increase of more than $110 million from the same period in 2011.
Despite all the strengths listed above, it is important to note the risks facing the company. As a social site, the company faces stiff competition from Facebook. If Facebook were to ever decide to enter the professional networking arena with a competing site, that could spell doom for LinkedIn. Additionally, the company's market cap sits just under $12 billion. The company only earned 2 cents during the last quarter on a GAAP basis. That would appear to be a fairly rich market cap for a company with that small of a profit. That said, the earnings, revenues, and membership trends appear to be rising so investors will have to decide to what extent they will continue to rise, if at all.
Yahoo is one of the largest search engines and sources of general purpose information across the web.
Yahoo saw its shares being acquired by some of the most well known hedge funds around during the previous quarter. Greenlight Capital, a hedge fund run by David Einhorn, acquired 5.1 million shares. Additionally, Third Point Capital, run by Dan Loeb, acquired a large stake as well. Third Point is actually the fund that was primarily responsible for the hiring of Yahoo's new CEO, Marissa Mayer, formerly of Google. Google is known for producing some of the best minds in the search business and clearly Marissa Mayer falls into that league.
Yahoo's shares have been on an absolute tear over the past three months, due in large part to a new CEO providing new direction from the company and an incredibly strong earnings report which saw the company's share price increase by about 6% after the report.
Yahoo has an incredibly strong balance sheet with about $2.2 billion in cash and very little long-term debt. The company's cash balance was really helped out when they sold part of their stake in Alibaba for roughly $7.1 billion.
Additionally, the company continues to innovate, especially with a new and energetic CEO at the help. Last year, the company launched a new browser called Axis, which showcases extremely strong security measures and predictive search capabilities. With future innovations such as this, the company could reap the benefits on the bottom line.
ET1980 has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and LinkedIn. The Motley Fool owns shares of Facebook, Google, and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!