Author: Jason Seo

In general, when one company announces it will acquire another, it usually pays a premium over the current price in order to get approval from the target’s shareholders. Hence, it is not uncommon for some investors to speculate on potential M&A activity (especially if an industry is going through consolidation), bidding up the stock prices of companies that they expect to be acquired. At the same time, other investors take the opposite view, shorting stocks that have risen from takeout speculation on the belief that any deal will not come to fruition. Here we will look at five stocks that…

Read More

Beating the market can be difficult when picking stocks on your own. One common source of alpha can be focusing on small cap stocks, which tend to outperform its larger peers over time. Another source of alpha can be following the smart money, by mimicking the trades of professional investors. Our research has shown that, by combining these two approaches – buying the most popular small-cap stocks recently purchased by hedge funds – one can outperform the market on average. Many hedge fund managers purchased shares of Macquarie Infrastructure Company LLC (NYSE:MIC) during the fourth quarter of 2013, including Richard…

Read More

One commonly-used gauge of a stock’s valuation is its Price / Earnings ratio. This metric is most useful when compared to those of its peer group operating in the same industry: if a stock’s P/E multiple is higher (lower) than peers, the stock is considered expensive (cheap) on a relative basis. All things being equal, a higher-than-peer P/E ratio implies market expectations for the company that are higher than the rest of its industry. However, this in and of itself is not a sell signal, since a company’s growth prospects can be higher than competitors due to a unique product…

Read More

Choosing good stocks is hard, even for investment professionals. There are numerous quantitative and qualitative factors to consider, such as a company’s earnings power, management capability, the fundamentals of the industry it operates in, and the regulatory environment, to mention a few. Although stock prices should, in theory, reflect all of this information, we believe there are pockets of inefficiency in the equity markets that can be exploited. One such opportunity is mimicking the buying patterns of hedge funds. During the fourth quarter of 2013, many hedge fund managers increased their holdings or purchased new shares of American Realty Capital…

Read More