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Babcock & Wilcox Co (BWC), Chico’s FAS, Inc. (CHS): Activist Clifton Robbins Betting On These Small-Caps

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Clifton S. RobbinsBlue Harbour Group recently submitted its 13F filing with the U.S. Securities and Exchange Commission for the reporting period of March 31. The filing indicated that the fund had a public equity portfolio valued at $3.31 billion, which represented an increase of $195.14 million over the previous reporting period. During the quarter, Robbins’ fund made only one new purchase and upped its stake in 11 stocks, while remaining primarily invested in technology and industrial goods stocks, with technology accounting for 36% of its portfolio value. The hedge fund is very strict on the companies it invests in; mainly working with stocks whose management is open to Robbins’ investment and management ideas. Blue Harbour Group is an activist fund by nature and has been investing in such a way since 2004, when it was founded by Robbins. Insider Monkey, being keen on the activities of the firm, has looked into three small-cap stocks where the firm placed bets: Babcock & Wilcox Co (NYSE:BWC), Investors Bancorp, Inc. (NASDAQ:ISBC), and Chico’s FAS, Inc. (NYSE:CHS).

Clifton Robbins - Blue Harbour

Following activist funds like Blue Harbour Group is important because it is a very specific and focused strategy in which the investor doesn’t have to wait for catalysts to realize gains in the holding. A fund like Blue Harbour can simply create its own catalysts by pushing for them through negotiations with the company’s management and directors. In recent years, the average returns of activists’ hedge funds has been much higher than the returns of an average hedge fund. Furthermore, we believe do-it-yourself investors have an advantage over activist hedge fund investors because they don’t have to pay 2% of their assets and 20% of their gains every year to compensate hedge fund managers. We have found through extensive research that the top small-cap picks of hedge funds are also capable of generating high returns and built a system around this premise. In the 32 months since our small-cap strategy was launched it has returned over 144% and beaten the S&P 500 ETF (SPY) by more than 84 percentage points (read more details). Soon, we’ll be releasing a new quarterly newsletter written by former activist hedge fund analyst Michael Bland that tracks ten or so activist campaigns at any given time.

At the end of the first quarter Blue Harbour held a total of 10.56 million shares of Babcock & Wilcox Co (NYSE:BWC), with a market value of $333.91 million. The technology company last released its quarterly earnings report on May 6, reporting earnings per share of $0.47, which beat analysts’ consensus estimate of $0.43. That was a better performance compared to the same quarter last year when it posted $0.42 in earnings per share. For the current fiscal year, Babcock & Wilcox Co (NYSE:BWC) is expected to post earnings per share of $2.25. The company recently declared a quarterly dividend of $0.10, representing an annualized dividend of $0.40 and a dividend yield of 1.20%. Seven analysts have a consensus one year price target of $36.43 on the stock, signalling potential upside of about 10%. Besides Blue Harbour Group, there were several other hedge funds that had stakes in the stock, including Jeffrey Smith‘s Starboard Value LP, Amy Minella’s Cardinal Capital, and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC. Out of the 730 hedge funds that we monitor, 38 of them were invested in the stock, including four billionaires.

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