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Hedge Fund 13F Stock Picks: Profiting From Idea Season

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NEW YORK ( RealMoney) -- As we move closer to Thanksgiving and the start of the holiday season, I have been enjoying another season that is important to value investors and idea thieves like me. As today's deadline approached, 13HF filings have been pouring into the Securities and Exchange Commission and I have been mining them for good ideas worth further investigation. The filings show the holdings of top hedge fund and institutional managers, and by comparing them to previous quarters, we can get an idea of buying-and-selling activity. I have used these filings as a tool for my entire career as a way to uncover the moves of the best distressed and value managers. When I started you had to wait for them to arrive in the mail, but today we can see them almost in real time on the Internet.

The whole world is going to comment on John Paulson filings because of the difficulties he has had this year, so I will skip his third-quarter report. One of the most anticipated filings is from Seth Klarman and his Boston-based hedge fund, Baupost Fund. I was surprised when Klarman made an almost conventional move last quarter by buying Microsoft (MSFT - Get Report). I am even more surprised this time as the noted value investor purchased more than 20 million shares of Hewlett Packard (HPQ - Get Report). The struggling tech company recently named Meg Whitman of eBay (EBAY) fame as CEO. At this point, the jury is very much out on the future of the company, as management has decided not to go ahead with the proposed spinoff of its personal computer division and instead is going to focus on restructuring across the board. Others may wish to follow Baupost into the stock, but I am going to pass. HPQ has the hint of a broken business about it and it appears to be losing share across many lines of business.

Klarman also purchased 10 million shares of Genworth Financial (GNW - Get Report), which is a much more intriguing investment that appeals to my inner vulture. The insurance and financial services company continues to experience losses from its U.S. Mortgage Insurance business. The life insurance and wealth management units are seeing healthy growth and the company could grow its way out of mortgage difficulties over the next couple of years. As loan delinquencies slow and loan modifications are worked out, the losses from that division should slow over the next several quarters and Genworth could see decent bottom-line earnings growth. With the shares trading at just 20% of tangible book value, the stock is a worthwhile distressed speculation. If the analyst expectations of $1.28 a share for 2012 are correct, then the shares could easily double over the next year. If the company trades in line with other insurance companies, the price could triple over the next few years.

Baupost added to its small biotech and medical stocks during the quarter. He bought more of one of my favorites PDL Biopharma (PDLI - Get Report), as well as Idenix Pharmaceuticals (IDIX) during the third quarter of the year. He also more than doubled his stake in BP (BP - Get Report) during the quarter, most likely during the August and September periods where the stock declined sharply along with the broader market. Klarman bought his second gold stock during the quarter buying 5 million shares of Novagold Resources (NG). The fund also took advantage of market weakness in the quarter to more than double its stake in old favorite Sycamore Networks (SCMR).

More filings will be coming in throughout the day today and I will be digging deep to see if I can find any additional value or distressed investing ideas worth sharing.

At the time of publication, Melvin had no positions in the stocks mentioned.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.

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SCMR $0.48 0.02%
BP $27.13 -3.20%
GNW $1.60 -7.50%
HPQ $8.96 -3.50%
IDIX $24.50 0.20%


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NASDAQ 4,237.4920 -46.10 -1.08%

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