One of the best ways to outperform the broader market is to follow hedge funds into some of their picks. Generally, a good strategy is to follow activist investors, since they don’t wait for a stock to gain value, but create catalysts that spur growth. Having said that, let’s take a closer look at Advance Auto Parts, Inc. (NYSE:AAP), Darden Restaurants, Inc. (NYSE:DRI), and WestRock Co (NYSE:WRK), and Brink’S Co (NYSE:BCO), which were among the top stock picks of the notorious activist Jeff Smith‘s Starboard Value.
At Insider Monkey, we follow around 750 investors and we calculate their returns based on their long stock positions in companies worth at least $1.0 billion. In Starboard’s case, our methodology showed that the fund gained 12.30% during the third quarter, based on 15 “relevant” holdings it had reported as of the end of June.
With this in mind, let’s move on to discussing the performance of some of Jeff Smith’s top investments.
In Advance Auto Parts, Inc. (NYSE:AAP), Starboard held 2.76 million shares worth $445.29 million at the end of June, after having increased the stake by 61% during the second quarter. The investment didn’t really pay off, as the stock slid by 7.7% during the third quarter. Back in September, Starboard issued a presentation, where it outlined some points that could increase the company’s value, including increasing margins, unlocking value from an “underappreciated asset” and “pursuing future industry consolidation”. Starboard also believes that the stock could went up to at least $350 per share. Overall, 51 funds tracked by Insider Monkey held shares of Advance Auto Parts, Inc. (NYSE:AAP) at the end of June, up by 11% over the quarter. Starboard held the largest stake, followed by Citadel Investment Group which amassed $229.9 million worth of shares. Moreover, Fir Tree, Balyasny Asset Management, and Marshall Wace LLP were also bullish on Advance Auto Parts, Inc. (NYSE:AAP).
Then there’s Darden Restaurants, Inc. (NYSE:DRI), in which Starboard cut its stake by 41% to 3.89 million shares worth $246.39 million at the end of the second quarter. The stock inched down by 2.3% in the following three months. However, it’s important to mention that Darden is one of Starboard’s most successful investments, since the fund managed to reshuffle the company’s entire board and to unlock substantial value following a fierce activist campaign. During the second quarter, the number of funds from our database long Darden Restaurants declined by 18% to 31. Trailing Starboard, which was also the largest shareholder of Darden Restaurants, Inc. (NYSE:DRI), was AQR Capital Management with a $199.5 million position. Other investors bullish on the company included HBK Investments, Gotham Asset Management, and Renaissance Technologies.