I've spent the past several weeks scouring the latest batch of 13F filings looking for interesting ideas. For the uninformed, 13F's are the quarterly filings required by fund managers revealing their latest fund holdings. The filings are released 45 days after the end of each quarter.
In the world of trading, 45 days seems like a lifetime, but to value investors this gap of time is irrelevant. In some cases, you can find that the securities are cheaper in 45 days, which really makes for a more intriguing idea if you can buy it for less than the fund manager.
I decided to take it a step further and focus on really small stocks owned by these funds. Obviously, that eliminates names like Warren Buffett, who deals in billions, but even he has said his returns would be far better if he were dealing with smaller sums of money. That's because small stocks are of no interest to the Wall Street marketing machine, which has to focus on the larger names that are favored by pension funds and large institutional funds.
Sizmek (SZMK) is a digital media company that has a market cap of $113 million, no debt and $40 million in cash. The company's technology is high quality and it would appear to be a candidate for a buyout given its balance sheet and the continued growth in digital media solutions.
WCI Communities (WCIC) is a developer of lifestyle community real estate in Florida. WCI has been around for a while and was hit hard when the housing market crashed and had to seek bankruptcy protection. The emerging company has a much cleaner balance sheet and is better positioned going forward. Florida remains a top destination for retirees and housing is stabilizing there. Shares trade for $19, or book value. The company has a market value of $500 million and $200 million in net debt, an incredibly manageable level for a real estate firm. The company is profitable and is expected to earn close to $2 per share in 2017.
Kindred Biosciences (KIN) is an animal medicine biotech company with a market cap of $83 million and nearly $60 million cash on hand. The company is still in the development stage of its drugs but animal drugs require a fraction of the cost and time needed to develop human drugs. Kindred has enough capital to develop its very fertile pipeline for years. One successful candidate will multiply the stock price.
There is a common disclaimer that small stocks are risker than larger stocks. In many cases, that's correct. But smaller stocks can also be more inefficiently priced than larger ones, making them a lower-risk, higher-return investment opportunity.