Frank Curzio's WALL STREET UNPLUGGED Podcast

13F Filings: What the Smart Money is Buying… and Selling

Ever heard of something called a 13F?

It’s a quarterly document that institutional investors who manage over 100 million dollars must file with the SEC to disclose the positions in their portfolios.

These 13Fs are fantastic for individual investors because they get to follow the “smart money.” These funds not only have to disclose their new stock positions, but whether they increase their positions, decrease their positions, or if they totally had an exit of a position.

And we get to see all of this every single quarter. Around two weeks after earning season.

Now, before you start buying everything that a hedge fund is buying in their 13F, let me warn you…

Sometimes a fund can be completely out of a position by the time they publish their 13F.

The reporting in a 13F happens quarterly, or over the course of three months. Once the quarter ends, the company has the next two weeks to file a 13F. By the time they publish it, they could have blown out of the position – especially the quant funds, like Renaissance Capital, DE Shaw, or any funds that use algorithms and computer programs to trade stocks. These transactions happen in a matter of seconds, leading to incredible volatility.

So, you’ve got to be careful saying, “Renaissance owns this,” or, “DE Shaw owns this,” because those guys are not even looking at the company and not even looking at fundamentals.

It’s all trading patterns and algorithms… and they’re in and out in no time.

That said, there are only a few major quant funds. And not counting them, 13Fs are awesome, because you can see exactly what the smart money’s doing.

Let me give you some examples of how I personally use 13Fs. And how I have used them to make recommendations to my readers…

The Baker Brothers

I call the Baker Brothers the “Warren Buffetts of Biotech.” If you get a chance, look them up. They are 100% focused on biotech healthcare.

They have an amazing performance, have been around forever, and took a huge position in a small biotech name around nine months ago. I mean a massive stake right from the start. This got my attention…

I had never heard the name of this small company before. And I only found out about it because I saw the Baker Brothers’13F.

So when the stock fell 15% from where they bought it, I started doing the research.

I realized the potential of it…

And recommended it for my newsletter subscribers. And we are now up over 40% on this name.

This is in about three, four months’ time.

Navient

Another idea I got from a 13F is Navient.

Navient is a student loan company that’s always under a ton of scrutiny.

Many analysts out there thought this name was going to zero, that it would get crushed… But I saw that Leon Cooperman, the head of Omega Advisors (worth over three billion dollars himself), owned a huge position in the stock.

There’s so much negativity out there. So you can’t just listen to everybody… You have to do your own homework.

Leon is one of the smartest guys out there. Whether you like him or not, he runs a very successful hedge fund at Omega. And he took a huge position in Navient.

I watched the stock fall from $20 a share into the single digits, around $11 or $12 maybe, while he was still a holder.

So… I started doing a ton of homework on the name.

I learned that the company had a major buyback plan for its stock and that 90% of its loans are backed by the government.

Most analysts didn’t understand this story.

So, I recommended it for my subscribers, and they did very, very well on it. Mostly because of Leon Cooperman. But remember, you have to do your own research as well.

After I read a 13F and find a stock I want to investigate, I look at research reports, do my analysis on the company, go to the company’s website, look at their presentation, look at the stock…

Then, I read the transcripts of one of the previous earnings calls for the stock.

The transcripts of the earnings calls are absolutely free and you can find them on any company website.

And in the case of Navient, the earnings call transcripts were one of the things that made me recommend the stock.

Leon Cooperman was on the call, asking questions about the stock’s poor performance.

Management responded, saying, “Listen, our fair value is probably around 20 bucks a share.” The stock was around $11 at the time. And as I mentioned, Navient had a huge buyback in place.

So Leon Cooperman said, “If you really think the fair value is 20 bucks, why don’t you use your entire buyback right now to purchase shares? Do it tomorrow.”

That’s called a super, super buy signal.

Anyone doing their homework would’ve had access to this information. I mean looking at the 13Fs, doing research on a name that you like, or finding out why a multi-billion dollar hedge fund is buying shares of a company when 99% of the world hates it. It’s all absolutely free.

I know it’s a ton of work and I know people have jobs. That’s why some people listen to my podcast or subscribe to my newsletter, because this is the kind of research I do.

But anyone could’ve found this name – any individual investor – if you looked in the right place. You didn’t need to know someone important or be in a certain circle. It’s just going out there and doing the homework.

That said, it’s rare to see a big name investor like Cooperman ask questions on a conference call for a small-cap company. Usually these guys have their analysts get on the call.

I saw it one other time though – in 2008 I believe – for Standard Motor Parts.

This was a small company – with a share price in the single digits. I think the company’s in the $40s or $50s now.

Mario Gabelli himself got on the earnings call to ask questions. And that means he was very, very, interested in what was going on.

It means that call is going to determine if the fund is going to sell their shares or motivate the management team.

These questions often are buy signals, as was the case with Cooperman.

So you can find out a lot of new ideas… and what companies the largest investors in the world are selling or dumping.

What about the latest batch of 13Fs?

Carl Icahn took a stake in Bristol-Myers.

I love it when a big name investor buys a beaten-down stock. It usually provides a nice price floor, because these big investors normally add to their positions over time. They don’t normally take a full position at once.

So, if the stock goes lower, they’re going to start adding to their position.

Bristol-Myers is one of the best platforms out there.

But they had some trial results for lung cancer that weren’t very good. Also, Merck makes a drug called Keytruda that’s taking market share from the two similar drugs that Bristol-Myers manufacturers.

So the stock was hit hard, but it’s still an amazing company.

John Paulson took a new position in Time Inc. (TIME).

You can look at the chart and look how much it’s moved recently.

Paulson is the second big name I know of that loves this stock.

The other name is a famous ex-CEO of a major media company. When he told me to buy Time, I said “you’re out of your mind.” He replied, “All right, we’ll see…”

Researching 13Fs doesn’t mean you’re going to buy the stocks right away, but hear me out…

There are a lot of managers taking new positions in Time Warner (TWX) last quarter. AT&T is making a bid to buy the company for $85 billion

That amounts to what? Around $107 a share. The stock is trading for $95-ish today.

A lot of managers see it as an arbitrage play, but these managers – I’m talking about Paulson, Canyon Capital, Corvis Management – all these guys took big positions in Time Warner last quarter.

Obviously, they believe this merger is a done deal because if it doesn’t happen, Time Warner’s stock is going to get crushed.

But it’s not trading at its full value, which you see often, because there’s a lot of regulation involved.

They may have to sell off some of the assets…

But the deal, according to these guys, who are very smart (and believe me, they have ties everywhere in Washington), are taking huge positions in Time Warner.

They believe this deal is definitely going happen.

David Tepper took new positions in Mylan and Teva.

If you are a regular reader or listener, you know these are two stocks that have kicked my ass. But I love to see big money pour into beaten-down companies.

Teva wanted to buy Mylan for $90 a share about 18 months ago. Today, the stock is in the $30s.

That’s how much these companies were crushed. So you’re seeing the smart money scoop them up.

I like cheap. I like hated, but I want to see an uptrend before I buy. And we’re now seeing the uptrend in Mylan and Teva. This is a strategy that my buddy Steve Sjuggerud always uses.

Instead of trying to “catch a falling knife,” you want to see that uptrend.

Soros took a new position in Pandora.

Really? What does that mean?

It means you want to do homework on this name. What is he seeing that nobody else is…?

David Einhorn lowers his stake in GM.

GM has been a loser for Einhorn.

He has a sizable 13 million share stake. But he sold a little over four million shares last quarter. So maybe as an investor you should be looking to get out of that position.

Einhorn closed his position in Take Two and US Steel.

These were monster winners for him – monster trades and short-term winners.

A very nice job for Greenlight Capital.

Warren Buffett’s Berkshire increased its position in airlines. And added an interesting new stake…

I love the position in airlines.

This is a sector that Buffett hated for so long. I love that my podcast listeners were really early to this party –buying Delta Airlines in the mid-$30s. It’s at $50 now. It’s nice to see Buffett buying at $45… 25% or so higher than where my listeners were buying.

Buffett also took a new stake in a company that is odd – Sirius Satellite. I haven’t seen anybody talk about this.

I know there are managers that make decisions for Buffett now, but Sirius is another name I want to revisit, along with Pandora.

That doesn’t mean I’m going to buy them… it means I want to keep an eye on them. So you see where I’m going here…

13F filings are a great tool to find new ideas. They don’t mean buy, but they make me dig deeper.

So I’m going to put these names on a watch list, see how they perform. Sometimes they’ll have a bad quarter and fall 20%.

And that could provide a great entry point, depending on why the stock fell 20%.

It may be a fantastic opportunity. For example, if Buffett just took a position in Sirius, and Sirius has a bad quarter and falls 15%, 20%, I know that Buffett’s going to be in there buying – because he’s an investor that buys stocks for 10, 20 years.

So again, use 13Fs as a platform to find new ideas.

Pay close attention to what the smart money is buying… and what they’re getting rid of.

Where to find 13Fs

These filings can be found in many places.

I use Briefing.com, which is a paid site. (I don’t get a dime for recommending them.)

Benzinga also publishes them, which is a free site.

And any recently published 13F should be pretty easy to find on Google. But I personally like Briefing because you can find any 13F in seconds.

For me, when it comes to research and platforms, it’s all about getting information as quickly as possible, because I want to do as much research as possible.

To help, below are a list of sites that provide what we’re looking for:

Good Investing,

Frank Curzio