Abrams Capital Management, run by David Abrams, again reported selling some shares of Engility Holdings Inc (NYSE:EGL). Abrams reduced its stake in the company by 500 shares sold in two transactions at an average price of $32.05 apiece. Following the deals, the fund owns around 1.8 million shares of the company. Last week, Abrams disclosed in two consecutive filings decreasing his exposure in Engility by some 689,900 shares.

Disclosure: none

Recommended Reading:

4 Halloween Hedge Fund Moves Worth Watching

Mohnish Pabrai Buys Some Horsehead Holdings at $12.74/Share

Rangeley Capital Reports 5.3% Stake in OBA Financial Services

In the hedge fund world, there are dozens of transactions made on a daily basis, and if you're a regular reader of Insider Monkey, you likely understand that some are more important than others. From Carl Icahn's seemingly endless stream of moves to the lesser-known activist investors, it's important to track hedge fund sentiment because it can beat the market if you know where to look.

With that being said, Halloween season is here, and we thought it'd be smart to take a look at some of the most important moves made this past week.

Dell

In a filing with the SEC on Wednesday, Carl Icahn revealed that he has now officially closed his entire position in Dell Inc. (NASDAQ:DELL). At the beginning of September, the billionaire penned an open letter to Dell shareholders conceding his battle against a buyout from Michael Dell and Silver Lake Partners, remarking, "The Dell board, like so many boards in this country, reminds me of Clark Gable's last words…they simply 'don't give a damn.'"

The company was delisted from the Nasdaq earlier this week, and the Dell-Silver Lake buyout paid shareholders $13.88 in cash per share, which included a 13-cent dividend. Icahn's sale was made at this price as well.

Adobe

On the same day, Jeff Ubben's ValueAct Capital made yet another move out of Adobe Systems Incorporated (NASDAQ:ADBE). The investor, who might be best known for his foray into Microsoft Corporation (NASDAQ:MSFT) earlier this year, sold around 3.4 million shares of Adobe in his second sale of the month. Ubben now owns 25.3 million shares of the application software company, down from the 31.3 million share-stake reported at the end of the second quarter. Despite the selling activity, Ubben and ValueAct have still not abandoned their activist stake in Adobe, as they still own slightly more than 5% of the company's outstanding shares.

Canadian Pacific Railway

As if you didn't have enough activists on your radar already, Bill Ackman's disclosure that he and Pershing Square cut 30% of their Canadian Pacific Railway Limited (USA) (NYSE:CP) stake last Friday is worth mentioning. Ackman now holds 17.2 million shares of the freight and logistics giant, versus 24.2 million reported in his latest 13F. Following the sale, the activist still owns 9.8% of the company and he's still its largest shareholder. Unless he made any other large moves that weren't reported to the SEC, we expect that Canadian Pacific has remained the largest holding in Ackman's equity portfolio.

Talisman Energy

If you wanted more Icahn, you got it. At nearly the same time he closed his Dell position, Icahn disclosed that he has upped his activist stake in Talisman Energy Inc. (USA) (NYSE:TLM) to 6.96%, from 5.9% held at the beginning of October. Earlier this month, we discussed what you might not know about Icahn's new stock pick, and the oil and gas producer is worth following because: (1) former Icahn pupil Keith Meister has a large stake, (2) Icahn has had successful campaigns in the energy sector before, (3) Talisman's assets are undervalued, and (4) management isn't against a buyout. The stock has fallen off a bit from its massive after-hours gain following Icahn's 13D filing, and investors are uncertain just how long any value stimulation will take. We'll be watching closely.

Disclosure: none

Mohnish Pabrai‘s Dalal Street, in a newly issued Form 4, disclosed increasing its position in HORSEHEAD HOLDING CORP. (NASDAQ:ZINC). According to the filing, Dalal Street purchased 2,300 shares of Horshead at a price of around $12.74 apiece. Following the deal, Dalal owns almost 5.2 million shares of the company.

Disclosure: none

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Rangeley Capital Reports 5.3% Stake in OBA Financial Services

Healthcor Management Cuts a Big Chunk of eHealth

Roumell Sells a Small Amount of Transcept Pharmaceuticals

In a new filing with the Securities and Exchange Commission, Rangeley Capital disclosed ownership of 5.3% of OBA Financial Services Inc (NASDAQ:OBAF). According to the filing, Rangeley now holds 212,400 shares of OBA, with an aggregate value of almost $4 million.

Several days ago, Clover Partners reported increasing its exposure in OBA to 6.6% of the common stock.

Disclosure: none

Recommended Reading:

Healthcor Management Cuts a Big Chunk of eHealth

Roumell Sells a Small Amount of Transcept Pharmaceuticals

Activist Glenn Greenberg Ups Stake in Higher One, Wants a Board Seat

Healthcor Management Lp, a healthcare-focused hedge fund managed by Arthur B Cohen and Joseph Healey, just disclosed it has sold 525,000 shares of eHealth, Inc. (NASDAQ:EHTH). The shares have been sold in one transaction, with the price amounting to $43 apiece. Following the sale, Healthcor still holds around 1.73 million shares of eHealth.

Disclosure: none

Jim Roumell‘s Roumell Asset Management reported reducing its position in Transcept Pharmaceuticals Inc (NASDAQ:TSPT) to some 2.3 million shares. According to a new Form 4, Roumell sold 7,020 shares in four transactions, with the price varying between $3.65 and $3.85 apiece.

Disclosure: none

Brave Warrior Advisors, led by Glenn Greenberg, reported in a newly amended filing with the SEC that it has proposed a recommendation for the board of Higher One Holdings, Inc (NYSE:ONE). At the same time, the fund slightly increased its exposure in Higher One Holdings to 4.641 million shares, from 4.638 million held earlier.

Earlier in September, Brave Warrior decreased its exposure in Higher One from 6.3 million shares, mentioned in its latest 13F filing. At the same time, the fund presented several points which showed that the current Board of Higher One “has not adequately performed its duties to supervise and evaluate management performance.”

In this way, the lead director of Higher One’s Board offered Greenberg to present names of qualified potential directors. Greenberg also will propose more candidates expecting that the Board “will follow through by reconstituting itself with qualified and truly independent members.”

Disclosure: none

Recommended Reading:

Jeffrey Eberwein's Lone Star Value Lowers Aetrium Exposure

Warren Buffett Is Wrong — Here's Why…

Philip Hempleman's Ardsley Partners Lowers Stake in Saba Software

In a newly amended 13D filing with the SEC, Jeffrey Eberwein’s Lone Star Value Management reported a 5.6% stake in Aetrium, Inc. (NASDAQ:ATRM). This is about half the size Eberwein and his fund disclosed in an earlier 13D, and the testing/measuring equipment company is down 25% year-to-date.

Disclosure: none

Recommended Reading:

Warren Buffett Is Wrong — Here's Why…

Philip Hempleman's Ardsley Partners Lowers Stake in Saba Software

Wynnefield Capital Boosts Stake Slightly in Telos Corp

Ardsley Partners, a fund founded and managed by Philip Hempleman, disclosed selling around 17,300 shares of its position in Saba Software, Inc. (OTCMKTS:SABA). The fund sold the shares in three transactions, with an average price amounting to about $11.50 apiece. Following the disposal of the shares, Ardsley Partners hold around 3.37 million shares of Saba.

Disclosure: none

Recommended Reading:

Wynnefield Capital Boosts Stake Slightly in Telos Corp

Deerfield Management Reports Holding 6.38% of MEI Pharma

Clinton Group Goes Activist On ValueVision Media, Sends Letter to Board

Wynnefield Capital, led by Nelson Obus, just reported slightly increasing its exposure in small-cap Telos Corp (OTCMKTS:TLSRP) to 400,222 shares, from 373,500 shares owned earlier. The new stake comprises 12.6% of the company.

Disclosure: none

Recommended Reading:

Deerfield Management Reports Holding 6.38% of MEI Pharma

Clinton Group Goes Activist On ValueVision Media, Sends Letter to Board

Hedge Fund News: Dan Loeb, D.E. Shaw & Nelson Saiers

In a new 13G filing, James E. Flynn and his fund Deerfield Management reported a position in MEI Pharma Inc (NASDAQ:MEIP), which represents 6.38% of the company. The stake held by Flynn amasses around 1.4 million shares of the MEI Pharma’s common stock, up from 822,199 shares disclosed in its latest 13F.

Earlier this month, Jacob Gottlieb‘s hedge fund Visium Asset Management reported initiating a new position in MEI Pharma Inc, which represents 5.4% of the company.

Oncology company, MEI Pharma recently announced an underwritten public offering in terms of which the company intends to sell around 4.4 million common shares, at a price of $8.00 apiece, with the gross proceeds amounting to some $35 million. The company will use the proceeds for clinical development of some of its drug candidates, as well as other purposes, MEI Pharma said in a press release.

Disclosure: none

Recommended Reading:

Clinton Group Goes Activist On ValueVision Media, Sends Letter to Board

Hedge Fund News: Dan Loeb, D.E. Shaw & Nelson Saiers

Seamans Capital Ups Stake in Quantum Fuel Systems to 7.2%

In a new 13D filing with the SEC reported in the last few minutes, activist firm Clinton Group disclosed a 5.8% stake in ValueVision Media Inc (NASDAQ:VVTV). In a separate letter sent to the electronic retailer’s Chairman Randy Ronning, Clinton discusses a few ways to “enhance” shareholder value at the company.

Here are a few highlights from that letter:

“As we have indicated to you, we believe the Company has great assets, a big opportunity for growth and a chance to create significant shareholder value. In particular, we believe the Company's uncommon asset, its ubiquitous cable and satellite distribution, is valuable but under-exploited. Despite cable and satellite distribution that is nearly as good as that of HSN, the Company's enterprise value is about one-tenth that of HSN.”

“Instead, as we have said, we believe that the Company has exploited that asset poorly and has dramatically under-performed its direct rivals, to say nothing of the Company's potential. When Keith Stewart, the Company's Chief Executive Officer, joined the Company, he declared that he was "going to change" the Company's "business model" and its "poor execution." Neither has happened.”

“Instead, Mr. Stewart missed nearly every long-term projection and metric he offered during his tenure. As we noted, for example, his publicly stated goal was to create a company with more than $1 billion in revenue with 8-12% EBITDA margins by now. He missed both targets by a country mile.”

“In the meantime, as we have discussed with you, we believe the Company has fallen further behind its competitors in terms of market share (of both revenue and gross profit dollars) and has failed to return to pre-recession levels of revenue, unlike most retailers, eCommerce companies and both of its home shopping network rivals. This performance gap has been caused, in our view, by a failure to innovate and differentiate the Company from its peers and repeated failures to hit customer count, penetration rate, distribution cost, operating expense and profit targets over the past four years. Mr. Stewart and his management team, many of whom we understand work from home, 1000 miles or more from the Company's headquarters at least two days per week, have in our view abjectly failed to build significant proprietary brands, expand product assortments sufficiently, diversify the program schedule, optimize the product mix and retain key successful vendors. Recently, the Company – which refers to itself as a "multi-channel retailer" – was ranked dead last among such companies for its mobile website.”

“Accordingly, as we have said to you, we believe the Board should replace Mr. Stewart to enhance operational performance and to pursue a new strategic path. We advocate this not because we are ungrateful to Mr. Stewart for his past stewardship of the Company, but rather because gratefulness has no place in picking the future leader of ValueVision. The Board's obligation, it seems to us, is to ensure the Company has the right leader for the future: a leader with entrepreneurial energy; strategic vision; a track record of operational excellence and exceptional performance; and credibility with investors, vendors and employees. We do not believe that person is Mr. Stewart.”

“That said, with the existing Board's approval and subject to the completion of due diligence, we would be prepared to put our capital where our mouth is. We would be pleased to make a fresh, primary, minority investment in the Company of at least $25 million at a substantial premium to the stock price if the Board would accept our recommendation and replace Mr. Stewart and upgrade the Board significantly. We are aware of several other industry players and investors who would strongly consider investing alongside us in such a transaction and we would be pleased to have any other public or private investor join us, for example, in a rights offering, in helping to fund a new era of growth and profitability at the Company, under the direction of new, world-class leadership. We would be very surprised if the team we have in mind could not attract significant capital at a substantial premium.”

Disclosure: none

Recommended Reading:

Hedge Fund News: Dan Loeb, D.E. Shaw & Nelson Saiers

Seamans Capital Ups Stake in Quantum Fuel Systems to 7.2%

Here's What This $10 Billion Value Investor Has Been Buying

Billionaire hedge fund boss denies Vanity Fair allegations he crashed into a child and was jailed while holidaying in Cuba (DailyMail)
One of America’s richest businessmen has denied claims that he was detained following a car accident in Cuba after ‘hitting a local kid with his car’. Daniel S. Loeb, the hedge fund manager who founded Third Point LLC, was involved in an accident while enjoying a weekend trip to Cuba, according to Vanity Fair. The piece, written for the magazine’s December edition, alleges that the incident happened while Loeb, 51, was on holiday with friends in 2002. But Mr Loeb’s lawyer told the New York Post that the allegations are ‘entirely untrue’.

Funds of hedge funds recast dismal model (FT)
How many investments have yet to recover from 2008? Most – if not all – major markets are well beyond their pre-crash peaks, at least in absolute terms. Most investment strategies too, have bounced back. Five years on, the idea that anyone should have failed to recover from the collapse of Lehman, and its attendant crises, is almost absurd, even given the volatile and difficult conditions in the years since. Spare a thought, then, for the fund of hedge fund managers of this world. And spare some tears for their clients.

Here’s How Hedge Funds Are Trading Puerto Rico (BusinessInsider)
There has been a recent flurry of activity regarding Puerto Rico, involving their debt, rating agency views of that debt, the bond insurers that have been insuring their debt, the state-specific mutual funds that are holding Puerto Rico debt, and the projected plans of the Puerto Rican government to improve their deteriorating credit picture and economic situation. We have new (August) economic information from Puerto Rico; see here. And we have the October 18 detailed financial report linked below.

Hey Banksy: Hedge Fund Manager To Go Ahead With Sandy Donations (HedgeCo)
Hedge fund manager Nelson Saiers has updated us here at HedgeCo saying, " On the eve of Sandy, I've decided to waive the criterion on Banksy and just donate the money to benefit underpriviledged children. I still have 142,000 of anonymous donations whose donors are waiting for Banksy." The official statement reads: "As the anniversary of Hurricane Sandy is upon us, I've decided to waive the criterion on my original letter and will donate the original $100,000 to World Vision to benefit underprivileged children in Sandy affected areas.

SEC sues investor over alleged Carter’s insider-trading scheme (GlobalPost)
The Securities Exchange Commission filed a civil complaint Tuesday against a retired hedge-fund investment consultant and market analyst who allegedly participated in an insider trading scheme involving Atlanta-based clothing marketer Carter’s Inc. Dennis Rosenberg, 70, was able to trade in advance of marketing-moving news from Carter’s based on tips received from a former executive at the company between 2005 and 2010, according to the complaint in federal court in Georgia. Rosenberg passed along tips to investment advisers at two hedge funds, who also traded on the information, the complaint said.

Hedge Funds Shorting World Acceptance Urge Consumer Bureau Probe (BusinessWeek)
Hedge funds betting against shares of World Acceptance Corp. (NASDAQ:WRLD) have been pressing the U.S. Consumer Financial Protection Bureau to investigate the installment-loan firm, according to people briefed on the discussions. The overtures from funds including New York-based Kase Capital Management and Boston-based North Run Capital make the bureau the latest target of investors trying to prod Washington regulators and policy makers to take actions that could benefit their trading strategies. Some funds also have met with congressional aides and consumer advocacy groups to encourage them to focus on World Acceptance, the people said.

Schapiro: More & better quality capital in system (CNBC)

In an amended 13G with the SEC just filed, Seamans Capital Management reported a 7.2% stake in Quantum Fuel Systems Tech Worldwide Inc (NASDAQ:QTWW), which is an increase from the 6.5% stake it reported a couple of days ago. Shares of the alternative energy company have dropped close to 20% today, but Seamans still appears very bullish.

Disclosure: none

Recommended Reading:

Here's What This $10 Billion Value Investor Has Been Buying

Weiss Asset Management Boosts Exposure to BlackRock Hedge Selector

Carl Icahn Officially Closes His Position in Dell

Every quarter, many money managers have to disclose what they’ve bought and sold via 13F filings. Their latest moves can shine a bright light on smart stock picks.

Today let’s look at Diamond Hill Capital Management, founded in 2000 and based in Ohio. Its management has explained, “Our research is predominantly a bottom-up process beginning with fundamental analysis of a company’s profitability and market position, financial and competitive position, management quality, valuation, and growth components of valuation.” Like other value-oriented investors respected by The Motley Fool, Diamond Hill seeks undervalued investments and margins of safety.

The company’s reportable stock portfolio totaled $9.9 billion in value as of Sept. 30, 2013.

Interesting developments
What does Diamond Hill’s latest quarterly 13F filing tell us? Here are a few interesting details.

The biggest new holdings are DST Systems and Infinity Property & Casualty. Other new holdings of interest include BB&T and US Bancorp. BB&T is a sizable Southeastern regional bank that has posting solid numbers in recent financial reports. Its latest quarter featured rising earnings and improved credit quality. BB&T stock yields 2.6%. US Bancorp is looking to profit from mobile banking, charging fees for check deposits and developing voice-recognition capabilities in its apps in order to increase convenience. It also posted solid earnings recently and yields 2.4%.

Diamond Hill Capital Management reduced its stake in lots of companies, including Devon Energy and AAR. Among holdings in which it increased its stake were Philip Morris International (NYSE:PM) , First Niagara Financial Group (NASDAQ:FNFG) , and Teva Pharmaceutical (NYSE:TEVA) Industries .

Philip Morris, the international counterpart to domestic tobacco giant Altria, yields 4.2%. Philip Morris’ third quarter featured estimate-topping earnings but also disappointing revenue and lowered projections. It has countered shrinking cigarette volume by raising prices and is enjoying rising smoking rates in some regions such as Asia. Nations with strong growth in smoking include Indonesia, Pakistan, China, Philippines, Mexico, and Korea, per Zacks research. Bulls like Philip Morris’ innovation and share buybacks and consider it attractively priced.

First Niagara Financial Group, yielding 2.9%, is trading near a 52-week high. It has more than tripled its asset base since the financial crisis, though it significantly increased its share count to do so. Meanwhile, First Niagara Financial has been managing its credit risk well, which is kind of important for a banking enterprise. And when interest rates rise, as they should eventually do, First Niagara will benefit. It’s poised for a solid turnaround.

Teva Pharmaceutical Industries, yielding 2.6%, has fallen out of favor with many investors, in part due to the impending loss of patent protection for its multiple-sclerosis drug, Copaxone. Bulls would remind you, though, that it’s still a major player in generic drugs and can make up for their slimmer profit margins through volume. It recently had 147 product registrations awaiting FDA approval.

Finally, Diamond Hill’s biggest closed positions included Stamps.com and Selective Insurance Group. Other closed positions of interest include Huntington Bancshares (NASDAQ:HBAN) and Diamond Foods (NASDAQ:DMND) . Huntington Bancshares is viewed by many as a high-quality bank due to its low percentage of nonperforming assets. It’s also viewed favorably for its effective management and smart growth strategy. Its recently reported quarter featured flat revenue but rising earnings and reduced costs — and a shifting business mix, including more auto loans. Huntington Bancshares yields 2.2%.

Diamond Foods’ stock is up about 29% over the past year, and that includes a sharp drop after it posted fourth-quarter results that included lackluster guidance. Diamond has suffered from accounting-related troubles, and its revenue growth has slowed. Its future might be bright, but it makes sense to consider a wait-and-see approach with this company.

We should never blindly copy any investor’s moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.

The article Here’s What This $10 Billion Value Investor Has Been Buying originally appeared on Fool.com.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy, Huntington Bancshares, and Philip Morris International. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

We’re told as children (and even as adults) that you can’t have your cake and eat it too. You can’t turn a hobby into a paying job, and if an activity is fun, there’s probably no money in it.

Good news: You can.

It’s true that the economy has changed our way of life over the past five years. We’re more conscious of saving and downsizing to match our spending habits. The proliferation of fuel-efficient automobiles has crossed into a market that was once thought purely recreational.

Winnebago Industries, Inc. (NYSE:WGO) and Harley-Davidson, Inc. (NYSE:HOG) are up nearly 75% and 35%, respectively, as baby boomers take to America’s roads. Clearly, recreational vehicles are in full swing, but there’s yet another type of vehicle that hasn’t gotten the attention it deserves: all-terrain vehicles (ATVs).

This category includes snowmobiles, ATVs and utility task vehicles (UTVs). Sales of UTVs have exploded in the past year: The two leading UTV manufacturers have posted quarterly earnings growth of 217% and 185% year over year. Polaris Industries Inc. (NYSE:PII) has been the undisputed leader in UTV, ATV and snowmobile sales, but Arctic Cat Inc (NASDAQ:ACAT) has been taking market share away from its larger competitor in the past year and posting better returns on equity while Polaris’ return on equity has been in decline.

Brand recognition in the snowmobile segment, aided by its popularity in the Winter Olympics, has allowed Arctic Cat to increase sales in the offseason by 70% from the same period last year. Sales of Arctic Cat’s side-by-side ATVs grew 23%, driven by the popularity of its Wildcat and Prowler models. For fiscal year 2013, UTV and ATV sales were up 32% from 2012, led primarily by the ever-growing UTV market where they are generally put to work in a variety of industries from security to golf course management.

A case for the short term can be made by looking at recent results for Vail Resorts, Inc. (NYSE:MTN), a mountain resort company. Vail reported less disappointing earnings than widely expected recently, and investors haven’t lost a step, sending MTN up 34% this year. Revenues from Vail’s mountain segment — an environment in which Arctic Cat products thrive — was up 13% year over year.

Arctic Cat has had annual earnings per share (EPS) growth of 78% over the past five years. The future is looking bright as well, with a price/earnings-to-growth (PEG) ratio of just 0.81 and a price-to-sales ratio of just under 1. Arctic Cat holds zero long-term debt and increased its cash holdings by $16 million, to a total of $40 million. For 2013, the company has authorized a stock repurchase plan of $30 million in shares.

Risks to Consider: Seasonal weather changes may weigh on sales, and recreational sales are highly dependent upon income levels which could face pressure in the future from growing political concerns regarding debt levels and the impact of the government shutdown.

Actions to Take –> The recent earnings miss should be viewed as a buying opportunity at this price. The company maintained positive guidance for 2014 with EPS between $3.27 to $3.37. The sharp sell-off appears to be an overreaction, and based on the relative strength index, ACAT appears oversold. Arctic Cat now looks to be undervalued by around 20%.

As Black Friday draws near more stores are announcing that they will start sales early by opening on Thanksgiving itself. American personal expenditure on non-durable goods is slowly going up (see graph below). Despite a slump at the beginning of the year, dollars spent in the early summer showed a positive change of .28%. But American real disposable income per capita is lower than last year. In fact, department stores like Macy’s, Inc. (NYSE:M) reported disappointing sales in the last quarter partly due to consumer health. Sluggish sales this year are going to be compounded by the shortest shopping and holiday season possible, a full 6 days shorter than usual because of a late Thanksgiving. Since the holiday shopping season can generate as much as 40% of annual revenues for some retailers, its little wonder then that Retail Trade is banking on Thanksgiving as well as Black Friday to make up for lost revenues.

Free snapshot reports on all 3 Black Friday stocks. Get our star ratings and scores for all fundamentals and dividend quality!

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There is however some good news for Black Friday stocks i.e. stocks of companies that could see a surge in revenue during the holiday season. American Express released a consumer survey that showed that consumers intend to start their holiday shopping sooner and spend $400 more than last year. To capitalize on this almost 800 Macy’s stores will open at 8pm on Thanksgiving. Kohl’s Corporation (NYSE:KSS) and J.C. Penney Company, Inc. (NYSE:JCP) have also announced they will open on Turkey Day. Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) have already been open previously on the last Thursday in November. Opening a few hours earlier than usual might give a much needed boost to many businesses. Brick and mortar stores will however still need to compete with e-commerce; up until August, retail had only grown around 3% whereas e-commerce sales were up over 8%. A Deloitte survey reveals that 47% of consumers intend to shop online this year for the holidays. Possibly because Black Friday lines and frenzies are well known; consumers have previously smashed doors at Urban Outfitters, Inc. (NASDAQ:URBN) and there have been stampedes in stores.

3 Black Friday Stocks: Retail & Department Stores

We examine 3 Black Friday stocks from a fundamental perspective. What does each of these companies have  going in its favor as consumer spending continues to increase? All three companies have both brick and mortar stores as well as online channels for shoppers. Analysis Notes: (i) CapitalCube's analysis is peer-based and in the analysis below each company has been analyzed relative to its peer set (ii) The words median and average are used inter-changeably and refer to the peer median (iii) Readers can access our analysis on over 40,000 companies by registering with us.

Macy's Inc (NYSE:M)

Macy’s operates under two brands: Macy’s and Bloomingdales. It’s flagship store in Herald Square, New York is one of the largest stores in the world at 2.2 million square feet. The company began a $400 million renovation project of the store due for completion this November. Macy’s is on our list of Black Friday stocks  because our fundamental analysis shows that compared to its peers, the company has better control over its costs. In a highly competitive retail season this could be advantageous. Even though changes in Macy’s revenues are in-line with its peers (annual revenue changed by 4.9%) its earnings performance has actually been better — its annual earnings changed by 6.3% (compared to the average of 2.4%). The department store chain currently manages to convert every 1% of change in revenue into 1.3% of change in annual reported earnings. Our analysis also shows that the company’s recent returns have improved versus the last five years (see the graph below). Macy’s current return on assets is 6.6% (the same as its peers). This recent performance contrasts with its less than peer median return on assets over the past five years (-0.3% versus the average of 3.9%). The company’s relative operating performance seems to be improving.

Urban Outfitters, Inc. (NASDAQ:URBN)

Urban Outfitters, Inc. is a lifestyle retail company, which operates retail clothing stores as well as a wholesale division. The Retail segment consists of Urban Outfitters, Anthropologie, Free People, Terrain, Leifsdottir and BHLDN brands, whose merchandise is sold directly through stores, web sites and other channels. The Wholesale segment consists of Free People division. Urban Outfitters attempts to achieve high profit margins (currently 9.0% vs. 6.5% on average ) through differentiated products. It currently operates with peer average asset turns of 1.5x. The company also supports growth; in the past three years its annualized rate of change in capital (1.5%)  is higher than average (-1.0%) and this investment has generated an above average return on capital for Urban Outfitters (18.2% in the same period). This is evidence that the relatively high capital investment has been successful given the relatively strong growth in its returns. Finally, it also seems as if the market sees faster growth ahead for the company (see graph below). While the company’s revenues growth has been around average in recent years (13.0% vs. 12.1% peer average for the past three years), the market gives its shares a higher than peer median PE ratio of 21.2. For all these reasons Urban Outfitters is on our Black Friday stocks list.

Warren Buffett is probably the most intelligent investor on Earth, but even he’s not right every time. One of Buffett’s most famous picks, International Business Machines Corp. (NYSE:IBM), stopped growing its revenue a long time ago. Third-quarter results were very disappointing, as Big Blue’s total revenue declined 4% year to year, sales to growth markets fell 9%, with BRIC market sales falling 15%, and the hardware business unit shrinking 17%.

Aware of poor results, tech investors are shifting resources from IBM to other traditional giants, like software king Oracle Corporation (NYSE:ORCL) — up 3% in the last month — or to promising cloud companies, such as Workday Inc (NYSE:WDAY) , up 17% in the last month. As a result, IBM’s stock is underperforming, with shares priced around $173. This is just $3 above the price Buffett paid for most of his 64 million shares at the end of 2011. In the long term, is Buffett right about IBM? Can Big Blue fix its business and restart top-line organic growth?

Source: YCharts

Forget about poor growth, Buffett is right about IBM
IBM’s revenue and share performance may be disappointing, but the company could still be a good income investment.

First, IBM’s management has authorized a five-year, $50 billion share-repurchase program, which is set to significantly reduce the amount of shares outstanding, currently 1.1 billion. This means that the percentage of ownership that each IBM investor holds is set to rise. In the case of Buffett, if IBM’s share price remains constant, his ownership could increase from 6.2% to 7.8%, representing millions of dollars.

Second, IBM has been raising its dividend consistently for the past decade. Assuming IBM pays $3.70 per share this year, the company will have raised its dividend 20% annually for the past 10 years, up from $0.70 in 2004. This high dividend is very attractive to long-term investors.

IBM and the race for top-line growth
Share repurchases and high dividends make IBM a great stock for a patient value investor. However, revenue growth is also an important investment factor, since nobody wants to invest in a company with a poor business.

As Arne Alsin mentions, two-thirds of IBM’s revenue is recurring, that is, derived from locked-in contracts. This is IBM’s core business, and unfortunately, is shrinking quickly as companies and institutions move from private clouds and personalized software to cheap, public cloud solutions.

Workday is a company that has taken advantage of the recent technological shift. Unlike IBM, Workday does not offer private cloud infrastructure or personalized IT systems. Workday is a cloud company offering software as a service for human capital management, data analytics and accounting. Most of its customers are medium-sized businesses, but it has also closed important deals with Fortune 500 companies. Workday represents the new type of competitor that traditional tech giants have to face. In the past two years, while IBM’s revenue contracted 5% and Oracle barely grew its top line, Workday experienced an amazing 84% revenue increase.

Source: YCharts

The good news is that, despite its recent revenue contraction, IBM’s long-term prospects remain attractive.