NEW YORK (TheStreet) -- Our specialty is identifying deep value stocks that have a catalyst at work.
One of our favorite "deep value screens" identifies cheap stocks in which rich, influential investors have taken a significant stake. This tends to be a very powerful formula.
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As a shareholder, the presence of this type of investor can mean you have a partner on your side, working everyday to push management to unlock value in the company. These investors tend to be very good at creating change in the companies they own. And the biggest predictor in the repricing of a deeply undervalued stock is change.
Below are five stocks that have been beaten down this year. And some of the biggest names in the hedge fund industry are aggressively buying them.
1) The Babcock & Wilcox Company (BWC) . This stock is down 14% in 2014. It's owned by three different large hedge funds, two of which are activists: Blue Harbour Group and Starboard Value. The third fund is Glenview Capital Management, which is run by the billionaire stock picker Larry Robbins.
2) SandRidge Energy (SD) . Billionaire hedge fund manager Leon Cooperman of Omega Advisors owns almost 10% of SandRidge and has been adding to his position all year. SandRidge has been rumored to be a takeover candidate but is still down 15% year to date.
3) Groupon (GRPN) The multibillion dollar activist hedge fund Jana Partners owns more than 7% of Groupon and added to its position last quarter. Groupon is down 48% this year and 70% from its IPO price in 2012.