Karen Finerman's Insider Stock Purchases During Fall 2012

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Readers may recognize Karen Finerman’s name from her frequent appearances on financial television. Ms. Finerman is a permanent member of CNBC’s Fast Money financial talk show, held Monday through Thursday at 5 p.m. ET.

Finerman graduated from the University of Pennsylvania’s Wharton School and co-founded Metropolitan Capital Advisors in summer 1992. She currently serves as CEO and co-manages nearly $100 million in assets within her hedge fund. Finerman differentiates herself from the other panelists on Fast Money with her value-oriented approach to investing, and generally maintains a buy-and-hold strategy within the Metropolitan Capital portfolio.

One of the disadvantages in evaluating the public filings of Wall Street managers is that generally you are looking through the rear-view mirror. Institutional investors are required to disclose their holdings 45 days after the quarter-end.

In my opinion, the passage of time between investment purchase and disclosure is less relevant for managers which maintain a buy-and-hold approach. Value investors such as Finerman generally have low turnover and hold their stock positions for an extended period.

For this reason, I feel readers could benefit by taking a closer look at Karen Finerman’s recent purchases for long-term investment. Here are the new positions held in the Metropolitan Capital portfolio as of September 30, 2012.

Aeropostale (NYSE: ARO) The mall-based specialty retailer reported a huge disappointment in second quarter fiscal 2012 earnings, causing shares to plunge more than 30% in a single trading session with a negative pre-announcement on August 2. Aeropostale reported $0.00 in EPS (neither income nor loss) versus consensus of $0.06 earnings per share. Net sales came in short at $485 million versus an estimated $496 million.

I suspect that Finerman stepped in and purchased shares of Aeropostale once the dust settled, as markets tend to overreact on both the upside and downside. The company subsequently reported third quarter earnings on November 28, beating expectations on earnings and revenue. In particular, inventory levels declined and gross margin improved.

It will be interesting to learn if Finerman held onto Aeropostale through the fourth quarter, as all of the downside risk seems priced in. Shares of Aeropostale have declined approximately 4% since September 30.

Finerman opened new positions in Foot Locker (NYSE: FL) and Finish Line (NASDAQ: FINL) during the third quarter of calendar 2012. Both retailers experienced a strong back-to-school season, and strength within the basketball category should bolster holiday results. Furthermore, Wall Street analysts believe these mall-based retailers will benefit from Nike market share gains in footwear and apparel.

Foot Locker has a significantly larger store base than Finish Line, which is reflected in the difference in market capitalization ($4.9 B vs. $1.0 B). Foot Locker trades at 12x forward earnings, while Finish Line trades at 11x forward earnings. Shares have declined 9.5% and 15% respectively since September 30. Finish Line will announce third quarter fiscal 2013 earnings before the opening bell on Friday.

LeapFrog Enterprises (NYSE: LF) This small-cap company develops educational entertainment products for children. Management recently introduced LeapPad2, a new version of their learning tablet in advance of the holiday season. Finerman is likely attracted to LeapFrog based on the company’s growth prospects and new product launches, and the stock is attractively valued at an 11x forward P/E based on fiscal 2012 estimates. Finerman purchased 38,100 shares of LeapFrog during the third quarter.

Equity research analysts at SunTrust have stated their channel checks indicate LeapFrog had a strong Thanksgiving weekend, which gives me confidence that the company will meet or exceed fourth quarter earnings. LeapFrog will report fourth quarter and full year 2012 earnings in early February. Shares have declined approximately 4% since September 30.

Las Vegas Sands (NYSE: LVS) Finerman purchased 19,000 shares of this casino and resort operator during the third quarter of 2012. Sands owns and operates properties throughout the United States, Macao, and Singapore. Among Finerman’s new investments during the third quarter, Las Vegas Sands is the largest purchase in dollar value.

Despite a flat three-month performance since September 30, shares are rallying more than 7% on January 2 based on strong data from the Macao Gaming Inspection and Coordination Bureau. In December, gross revenue from Macao’s 35 casinos surged 20 percent to $3.5 billion equivalent, a monthly record. Macao is the only region in the People’s Republic of China where gambling is legal. Shareholders of Las Vegas Sands also received a $2.75 special dividend on December 18.

Finerman disclosed the above holdings on the filing deadline of November 14, 2012. The size of the common stock portfolio at Metropolitan Capital declined by approximately $7 million during the third quarter, likely due to investor withdrawal requests. Unfortunately, it is not possible to determine the amount of cash being held by Finerman relative to common stock.

Metropolitan Capital Advisors should release their December 31, 2012 holdings within 45 days into the New Year. Visit my page after the February 14, 2013 deadline, and I will update readers on Finerman’s activity during late 2012.

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johnmacris has no positions in the stocks mentioned above. The Motley Fool owns shares of Aeropostale. Motley Fool newsletter services recommend LeapFrog Enterprises. 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!

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