Activism-Focused 13D Management Is Betting Big on Lifelock (LOCK) And Howard Hughes (HHC); Plus Three New Additions

Kenneth Squire established 13D Management in late 2011 and is still serving as the fund’s Chief Investment Strategist. Prior to that, he managed a subscription-based research company with an emphasis on activist investing and 13D filings, which is still active. 13D Management is a long-only fund that employs a strategy similar to that of Insider Monkey. It identifies investment opportunities mainly by analyzing 13D filings of prominent investors with proven track records and solid reputation. At the end of the second quarter, the fund’s equity portfolio carried a market value of $243 million and was well diversified across a number of industries. According to its latest 13F filing, 13D Management made only four new additions to its portfolio, so in this article we’ll take a look at these moves, as well as its new top equity bet.

While there are many metrics that investors can assess in the investment process, hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

Hot Spin-off

First up is Armstrong Flooring Inc (NYSE:AFI), the maker of flooring solutions. According to its latest 13F filing, 13D Management acquired 71,134 shares of the company during the second quarter, a position valued at approximately $1.21 million. Hedge fund interest in Armstrong Flooring Inc (NYSE:AFI) picked up during the second quarter, with 16 of the funds followed by Insider Monkey having reported a stake in the company at the end of June, up from just one registered three months earlier. Jeffrey Ubben‘s ValueAct Capital, another activist hedge fund, has also initiated a stake in the company, having amassed 4.6 million shares worth $77.9 million. The large increase in hedge fund interest is also due to the fact that Armstrong Flooring Inc (NYSE:AFI) started trading shortly before the end of the first quarter, completing a spin-off from parent Armstrong World Industries Inc (NYSE:AWI). Since then, the stock has made a solid advance, having ended Monday’s trading session at $18.86 per share, up by more than 40%. For the second quarter, Armstrong Flooring posted $323.7 million in revenue and adjusted earnings of $0.41 per share, topping Wall Street’s expectations of $0.40 per share.

Merger Play

Imperva Inc (NYSE:IMPV) is another stock Kenneth Squire is bullish on, having initiated a position that amounted to 150,000 shares worth roughly $6.45 million at the end of the second quarter. Hedge fund sentiment towards Imperva Inc (NYSE:IMPV) improved significantly over the quarter, with the number of long hedge fund positions having increased to 21 at the end of June, from 15 at the end of March. Billionaire Paul Singer is also optimistic about the prospects of this company, as his fund, Elliott Management, reported a fresh stake in its latest 13F filing, that amounted to 2.33 million shares. Elliott’s stake is activist by nature and has stated in a filing that it would look at a wide range of strategic moves to increase shareholder value, including a potential sale of the company. In July Imperva Inc (NYSE:IMPV) hired Qatalyst Partners, an investment bank, to advise in on selling itself after registering some unsolicited interest. There is speculation that Cisco Systems, Inc. (NASDAQ:CSCO) could make a move, although International Business Machines Corp. (NYSE:IBM) is also seen as a potential buyer.

Turn the page to read about 13D Management’s two new bets as well as the number one position.

Pandora Picking Up Steam

As Pandora Media Inc (NYSE:P) recovers after testing its all-time low, 13D Management is looking to get a piece of the action. During the second quarter, the fund acquired 603,946 shares reportedly worth $7.52 million at the end of June. At the end of the quarter, roughly 45% of Pandora Media Inc (NYSE:P)’s common stock was held by 46 of the funds in our database, up from 35 funds at the end of the first quarter. Gilchrist Berg, the manager of Water Street Capital, made a big bullish play on Pandora, having boosted his fund’s stake by 7941% to 8.04 million shares worth a little over $100 million at the end of June. Pandora Media Inc (NYSE:P) is currently preparing to offer an on-demand music streaming service similar to Spotify and Apple Inc. (NASDAQ:AAPL) Music. The company will offer a package priced at the standard $9.99 per month as well as a lower-priced one. Pandora’s management has also reaffirmed its five-year goal to generate $4 billion in revenue by 2020 and there have even been rumors circulating the Street about a potential takeover.

Bullish On Lifelock

Kenneth Squire’s largest new bet is on Lifelock Inc (NYSE:LOCK), the provider of security solutions. Valued at $8.75 million, 13D Management’s stake amounted to 553,792 shares at the end of the second quarter. Lifelock Inc (NYSE:LOCK) gained a boost of popularity over the second quarter, as the number of long hedge fund positions (among the funds we track) rose to 22 at the end of June from 16 recorded three months earlier. Paul Singer and his team share Kenneth Squire’s optimism about Lifelock as well, with Elliott Management having established a fresh position that amounted to 7.15 million shares valued at $113 million. Although it registered a significant correction in January, Lifelock Inc (NYSE:LOCK) managed regain all the ground lost and is currently up by 15% through Monday’s closing price of $16.19 per share. The stock took a tumble in the beginning of August, as the company registered a significant rise in costs. Lifelock reported a 9% increase in membership in the consumer side of the business to 4.4 million users, while client acquisition costs rose 23% year-over-year. The company reported a 13% increase in revenue to $164 million and adjusted earnings of $0.07 per share.

New Favorite

Howard Hughes Corp (NYSE:HHC) is 13D Management’s new top dog, after Kenneth Squire boosted his investment by 4% to 115,276 shares worth approximately $13.2 million. Hedge fund sentiment towards Howard Hughes Corp (NYSE:HHC) cooled down a bit during the quarter, with 24 of the funds tracked by Insider Monkey having reported a stake at the end of June, down from 26 three months earlier. Billionaire Bill Ackman is also keeping an eye on this stock, with his fund, Pershing Square, holding 3.56 million shares worth roughly $408 million at the end of the quarter. Howard Hughes Corp (NYSE:HHC) has a market cap of $4.5 billion and is currently trading at a trailing Price-to-Earnings (P/E) ratio of 18, slightly higher than the industry average of 12 as reported by Yahoo! Finance. For the second quarter, the company posted a profit of $7 million or $1.58 per share when adjusted for non-recurring costs, beating analysts’ projections of $0.75 per share. Revenue rose 30% year-over-year to $272 million. Analysts recommend this stock mainly as a ‘Buy’, with an average price target of $177 per share, implying an upside potential of 56% given Monday’s closing price of $113.43 per share.

Disclosure: none