Karen Finerman's Insider Purchases in Biotechnology and Healthcare
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Institutional fund managers were required to file their Q4 2012 investment holdings with the SEC no later than Thursday, February 14. While the financial media has been persistent combing through the filings of billionaire investors Carl Icahn and Bill Ackman, I’ve dedicated my time to smaller fund managers such as Karen Finerman that offer more digestible investment advice for the retail investor.
I'll offer my brief opinion on Herbalife before turning attention to Finerman's activity for the fourth quarter.
Icahn's 13-D on Herbalife: Lesson for Retail Investor
One takeaway I will give readers regarding the Icahn/Ackman debate over Herbalife (NYSE: HLF) is to recognize the financial discipline in which Icahn has quietly accumulated his Herbalife shares. Icahn’s 13-D filing reveals that the billionaire investor was scooping up shares of Herbalife on Christmas Eve as low as $25.72 per share. Icahn continued to buy shares in the $30 range and stated publicly on February 14 he has not purchased a single share of stock in the $40 range. Meanwhile, retail investors are piling in at significantly higher prices than Icahn paid himself.
Although I side with Ackman, ultimately I believe Herbalife management and Icahn will prevail. Ackman needs nothing short of an indictment of fraud from the Justice Department, and an investigation could take a significant amount of time to complete. If Ackman could have forced an injunction on Herbalife, he would have pursued this form of judicial process already. Icahn and Herbalife management could also take the company private. I advise readers to stay out of the Herbalife battleground, as news flow is unpredictable and therefore could have a negative effect on your trade.
Karen Finerman's Recent Activity for Q4 2012
Value investor Karen Finerman is one of several money managers that I look forward to reviewing on a quarterly basis.
Readers may recognize Finerman from her frequent appearances on CNBC’s Fast Money financial talk show, held Monday - Thursday at 5 p.m. ET. I had the good fortune of watching the show live on July 20, 2010 in New York and meeting Ms. Finerman for a brief moment afterwards.
Here are a few notable changes Finerman made at her hedge fund during fourth quarter 2012:
GNC Holdings (NYSE: GNC)
Metropolitan Capital Advisors purchased 29,100 shares of GNC during the fourth quarter. During the fall, GNC fell from a high of $40 in October to a low of $32 on November 16. A portion of the weakness was related to a secondary offering of 11.73 million shares of stock sold at $35.20 per share.
On February 14, GNC Holdings spiked higher by nearly 10% on heavy volume, following an earnings beat and strong guidance. The company reported an adjusted $0.50 EPS vs. $0.46 consensus and provided FY 2013 guidance of $2.75 - $2.80 vs. $2.72 consensus.
Analysts at Morgan Stanley hit the nail on the head heading into GNC’s recent fourth quarter results. On February 7, the firm reiterated its Outperform rating and $47 price target on the stock, when shares were trading near $36. Following the earnings release, shares closed at $40.60 on February 15 for a respectable gain.
Finerman gave GNC as her final trade on CNBC’s Fast Money as recently as February 13, preceding the company’s better-than-expected earnings announcement. Steve Grasso, another contributor on CNBC’s Fast Money, disclosed on the same date that his clients owned shares of GNC. This indicates to me that the hedge fund community continues to have preference for the name.
Shares of the nutritional supplements retailer have rallied 22% between January 1 and February 15.
SPDR S&P Biotech (NYSEMKT: XBI)
Metropolitan Capital Advisors purchased 11,000 shares of the SPDR (“Spider”) S&P Biotech exchange-traded fund during the fourth quarter. In the past, Finerman has spoken about the secular bull market in biotechnology. However, she's indicated her preference to reduce company-specific risk in the biotech sector by diversifying through a basket. The top three holdings in XBI are Regeneron Pharmaceuticals, Gilead Sciences, and Amgen.
Two of my personal favorites, Celgene and BioMarin, are included in the top 10 holdings (Reference my articles on CELG and BMRN).
Shares of the SPDR S&P Biotech are up 8.6% year-to-date and 21% in the last 52 weeks. I like biotechnology for portfolio diversification. The sector is also growing and less impacted by economy activity.
WellPoint (NYSE: WLP)
Metropolitan Capital Advisors purchased shares and call options of this health benefit company during the October - December time period. However, fast-forward to February 2013 and I think it’s safe to say Finerman hasn’t seen her desired scenario at WellPoint come to fruition thus far.
On November 7, WellPoint reported third quarter earnings, stating it expected “relatively stable” earnings from 2012 through 2013. Analysts at Bank of America Merrill Lynch didn’t agree, downgrading the stock to Underperform from Buy, citing implementation risks from healthcare reform and greater uncertainty at the company. At the time, WellPoint stated the company’s search for a new CEO would take 3-6 months including internal and external candidates.
It’s difficult to determine which specific factors drew Finerman into the stock during the fourth quarter. However, I suspect she found the valuation attractive, and foresaw potential upside in the share price if the firm achieved a better-than-expected resolution.
On February 12, WellPoint named Joseph Swedish as the new CEO of the company, succeeding interim CEO John Cannon. Swedish comes to WellPoint from Trinity Health, the tenth largest health system where he also served as CEO. Analysts at Moness Crespi Hardt and Wells Fargo both responded with a “sell the news” reaction, issuing downgrades to Neutral from Buy. In addition to management turnover, Wall Street analysts agree that the firm faces margin pressure under the Obamacare system.
The newly installed CEO could certainly cause Finerman to alter her position in the New Year. Majority investors ousted former CEO Angela Braly at the end of August 2012, indicating there had been a high level of dissatisfaction with prior management. WellPoint rallied 8% on August 29 following the resignation of Braly, and now we find ourselves in a scenario where investors are lukewarm about a CEO with no prior experience at a public company.
In contrast to Finerman, Greenlight Capital’s David Einhorn liquidated his position in WellPoint during the fourth quarter, according to his firm’s 13-F filing. It will be interesting to learn if Finerman holds her WellPoint position through March 31, when Q1 2013 filings are released on May 15.
Foolish Bottom Line
Karen Finerman generally maintains a buy-and-hold approach to her investments and maintains low turnover in the portfolio. Therefore, readers can greatly benefit from studying her investment activity.
Biotechnology remains in a secular bull market, and the SPDR S&P Biotech ETF is a great way to gain exposure. Specialty retailer GNC also appears to be gaining traction with its nutritional supplements, and I believe it has upside towards Morgan Stanley’s $47 price target. However, I suspect Finerman may have sold her position in WellPoint and I am neutral on the stock.
Metropolitan Capital Advisors is required to disclose its March 31, 2013 holdings within 45 days after the quarter end. Visit johnmacris.com after the May 15, 2013 deadline, and I will update readers on Finerman’s activity during early 2013.
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