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Hedge Funds' Small-Cap Stock Buys

BOSTON ( TheStreet) -- Wall Street has been abuzz with the new stock positions of top hedge-fund managers. Although the Dow and S&P 500 stocks they purchased in the fourth quarter are now known, many small-cap picks have gone unnoticed. Here's a look at five small-cap bets recently initiated or expanded by top-performing hedge funds.

David Einhorn

5. David Einhorn, who runs long/short Greenlight Capital, started a modest 100,000-share position in Capitol Federal Financial (CFFN - Get Report) during the fourth quarter. Capitol Federal is a savings-and-loan bank holding company, whose subsidiaries provide residential, construction and consumer lending. It's the largest residential lender in Kansas. Capitol Federal's stock has fallen sharply during the past 12 months, but pays an attractive 22 cent quarterly dividend, converting to an annual yield of 7.6%. Still, the dividend has fallen 3.1%, annually, over five years.

Capitol Federal, which recently changed its ticker, announced a 60-cent welcome dividend, equal to a 5.1% yield on its share price, payable on March 25 to shareholders of record on March 11. Capitol Federal's adjusted fiscal first-quarter earnings dropped 30% to nine cents, missing analysts' consensus target by 17%. Its adjusted top-line figure, at roughly $100 million, beat consensus. Capitol swung to a GAAP net loss of $11 million, or seven cents a share, from a profit of $21 million, or 13 cents, a year earlier. Its gross margin remained steady at 49%, but its operating margin contracted from 35% to 33%. The cash balance multiplied twelvefold to $1.3 billion.

Capitol Federal has a market value of $2 billion and a beta of 0.4, indicating below-average market correlation. Of analysts covering the company, six, or 75%, rate its stock "buy", one rates it "hold" and one ranks it "sell." The stock has a median 12-month target of $13.50. Here is a look at targets and valuation:

KBW, Overweight, $14
RBC Capital Markets, Outperform, $14
Stifel Financial, Buy, $14
FBR Capital Markets, Outperform, $13
Barclays, Overweight, $12

Forward Earnings Multiple: 27 (12% Industry Discount)
Trailing Earnings Multiple: 57 (105% Industry Premium)
Cash Flow Multiple: 40 (113% Industry Premium)
Book Value Multiple: 1 (16% Industry Discount)
Sales Multiple: 5.2 (62% Industry Premium)

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