Iridian Asset Management Loads Up On Top Picks: Lowe’s Companies, Inc. (LOW), Tyson Foods, Inc. (TSN), Yahoo! Inc. (YHOO), More

Iridian Asset Management is an independently-owned, value-oriented investment management firm. Its 13F portfolio had $13.4 billion as of December 31, 2016, which were invested in its U.S. mid-cap and alternative strategies. The company was started in 1996 by David Cohen and Harold Levy. The philosophy of the fund is to invest in “corporate change”, as they believe that while markets are generally efficient in determining value, they regularly fail to discount the long-term strategic and investment implications of dramatic structural changes in a company or industry. Their investment process is built on bottom-up research and they use mostly in-house generated fundamental research to identify companies undergoing said “corporate change” and generating large amounts of free cash flow.

In the following article we’ll look at a few of the fund’s top positions as of the end of the fourth quarter of 2016, based on its recent 13F filing with the SEC. The filing showed that the fund had a modest turnover percentage of 32.53% during the fourth quarter, and that its 13F portfolio was valued at $10.83 billion at the end of 2016, down slightly from $11.44 billion a quarter earlier.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

General Dynamics Corporation (NYSE:GD) was Iridian Asset Management’s top holding on December 31, with the position of 2.83 million shares having a value of $489 million at the end of 2016. The fund increased its holding in the defense stock by 69,981 shares during the fourth quarter. General Dynamics Corporation (NYSE:GD) is also a favorite of Dan Loeb’s Third Point, which increased its stake in the stock by 280% to 1.35 million shares worth $209 million at the end of September. The aerospace defense company has risen by 37% over the last year, mainly driven by Donald’s Trump campaign promise to substantially increase defense spending. The company recently entered the hallowed ranks of dividend aristocrats, which means that it has an unbroken track record of paying and increasing dividends over the last 25 consecutive years. With a dividend yield of 1.66%, General Dynamics Corporation (NYSE:GD) is the only major defense stock to be a part of this elite group. The number of hedge funds in our system holding the stock declined to 40 at the end of September from 51 at the end of June.

During the fourth quarter, Iridian Asset Management added 1.03 million shares of Lowe’s Companies, Inc. (NYSE:LOW) to its portfolio, making it the fund’s third-largest holding at 5.97 million shares valued at $425 million. The company, which is one of the largest home improvement retailers in the U.S has underperformed the market over the last year, giving a measly return of 2%. A majority of analysts view Lowe’s Companies, Inc. (NYSE:LOW) in a neutral manner, with 11 out of the 16 analysts covering the stock rating it as a ‘Hold’. Lowe’s Companies’ management recently announced a major restructuring exercise by cutting thousands of workers and shuffling the jobs of thousands of others. It also announced a $5 billion buyback program. The number of hedge funds in our system holding the stock inched up slightly to 68 at the end of September from 67 on June 30. Andreas Halvorsen‘s Viking Global initiated a new position in the stock during the September quarter, buying 2.7 million shares with a value of $195 million.

We’ll check out three more top stock picks of Iridian Asset Management on the next page.

Tyson Foods, Inc. (NYSE:TSN) was the fourth-largest position held by Iridian Asset Management on December 31, with a total value of $416 million. The fund bought 943,331 shares of the company during the quarter, lifting its holding to 6.7 million shares. Tyson Foods, Inc. (NYSE:TSN) is one of the largest meat retailers in the country, with a market value of $23.8 billion. Tyson Foods, Inc. (NYSE:TSN) has fallen by 11% over the last month and trades near the mid-point of its 52-week price range. The company performed well in the early part of 2016 but the stock fell sharply in November after it delivered poor results and its CEO stepped down. Analysts have an average target price of $69 on Tyson Foods, Inc. (NYSE:TSN), which is just 5% above the current market price. The number of hedge funds in our system long the stock fell to 35 at the end of September from 40 at the end of June.

Iridian Asset Management made Yahoo! Inc. (NASDAQ:YHOO) its top technology holding by purchasing 730,813 shares in the fourth quarter, taking its position to 9.69 million shares worth $374 million. The company now accounts for 3.46% of the fund’s 13F portfolio and ranks as its sixth-biggest holding. Yahoo! Inc. (NASDAQ:YHOO) was embroiled in controversy after a major security breach of its user data came to light, putting its sale to Verizon Communications Inc. (NYSE:VZ) in jeopardy. Despite the spate of bad news, the stock has increased by 8.5% in the last 3 months and currently trades near the top of its 52-week range at $45. The reason behind the surge was good quarterly results in which the company beat analyst expectations on both the top- and bottom-lines. Yahoo! Inc. (NASDAQ:YHOO) reported revenue of $1.47 billion and adjusted EPS of $0.25, while analysts had muted expectations of just $907 million in revenue and $0.21 in EPS. The number of hedge funds in our system bullish on the stock increased to 90 at the end of September from 81 at the end of June.

Las Vegas Sands Corp. (NYSE:LVS) was another stock in which Iridian Asset Management added substantially to its position during Q4, buying 938,501 shares to lift its holding to 4.8 million shares valued at $256 million. The stock has given a flat performance over the last 5 years, though it has seen an increase of 14% over the last year. Most analysts are bullish on Las Vegas Sands Corp. (NYSE:LVS) however, with 12 analysts rating it as a ‘Buy’, while 10 have rated it as a ‘Hold’. The mean target price is $60, which implies a 20% gain from the current price. The company missed Q4 expectations with revenue of $3.08 billion and EPS of $0.64 falling slightly short of the $3.11 billion in revenue and $0.66 in EPS that analysts had predicted. Las Vegas Sands Corp. (NYSE:LVS) recently reached a settlement with the Justice Department to pay $6.96 million over a criminal matter related to improper financial dealings in China. The number of hedge funds in our system long LVS increased sharply during the third quarter, to 31 at the end of September from 23 at the end of June, with their combined holdings also growing to $6.5 billion in value from just $2.8 billion.

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