A Crucial Peek Into Their Portfolios

 | Oct 25, 2012 | 11:34 AM EDT  | Comments
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chk

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dva

While the next couple of weeks will be watched closely by the markets as Election Day approaches, I'm looking forward to the week after Nov. 6. That's when investment funds are set to start filing their third-quarter 13F filings with the SEC, which will show what stocks these funds have been buying and selling. Examining 13Fs is one of my favorite activities -- after all, there are tens of thousands of stock to choose from, and these are perhaps the best stock screens available to investors. I have about a dozen or so investors I follow, but with this upcoming batch of filings I am particularly interested in a few particular names.

Hewlett-Packard (HPQ) is one stock that I will be looking for in the 13F from Baupost, the wildly successful hedge fund run by value investor Seth Klarman. Several quarters ago, Klarman disclosed a meaningful new stake in HP. So far, HP shares have been a huge disappointment, having lost more than 20% in the third quarter nearly 50% so far in 2012.

A declining share price is of no concern to an investor like Klarman, provided he still feels the underlying earnings power of a company are still intact. Hewlett-Packard has said it could experience nonexistent growth for the next year or so. So when Baupost releases its 13F in a couple of weeks, it will be interesting to see if he has added or reduced the position. At $14 a share, HP shares are trading at multiyear lows, and they could be a fantastic bargain if its troubles are indeed temporary.

Natural gas giant Chesapeake Energy (CHK) is another name to watch. Over the years, these shares have been crushed thanks to corporate-governance issues and a multiyear decline in the price of natural gas. Yet Chesapeake controls some of the most valuable assets in the U.S -- and, after years of buying and drilling assets, the company has now decided to monetize some of those assets.

Chesapeake shares are down 14% year to date. Its two largest shareholders are Carl Icahn and Southeastern Asset Management, two investment operators that employ different strategies, but are each successful. Both have purchased shares at prices below and above today's current price of $20 a share. By some accounts, Chesapeake's intrinsic value is somewhere in the high $30s.

DaVita (DVA) is another very interesting name that, unlike HP and Chesapeake, has been a standout. Shares are up nearly 100% over the past year. DaVita provides kidney dialysis services to patients with acute kidney disorders through a network of company-owned dialysis centers. This company has been a favorite investment of Ted Weschler, the brilliant hedge fund manager who was picked by Warren Buffett last year to run a portion of Berkshire's equity portfolio. For years DaVita has been a favorite holding of Weschler's in his hedge fund. When he closed up shop to come to Buffett's Berkshire Hathaway (BRK.A) Berkshire, DaVita became a holding in Berkshire.

DaVita's market capitalization totals nearly $11 billion, and it has just over $4 billion in net debt. Free cash flow has grown from some $400 million in 2009 to nearly $800 million in 2011. At last check, Berkshire was a net buyer of DaVita. After the run-up in the share price this year, it will be interesting if Berkshire has added or disposed of any shares.

Amid a stock market that's nearing record highs, continued stimulus by the Federal Reserve and what appears to be a slowdown in earnings growth, the release of 13Fs will provide very useful information for investors.

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