Jana Partners’ Third Quarter Portfolio: Closer to the Chemicals and Pharmaceutical Industries

Many hedge funds have been filing their 13Fs for the third quarter of 2013 lately. In these forms, they disclose many of their long equity positions as of the end of September. Although the portfolio information is a few weeks old, there are still a few ways for investors to use it.

We have found, for example, that the most popular small cap stocks among hedge funds outperformed the market by 18 percentage points even though we started measuring the returns a couple of weeks after 13Fs have been made public. It can also be productive to treat individual 13Fs as free recommendations from fund managers- not necessarily to be followed, but to be considered briefly and then researched further if they seem appealing.

In this article, I will briefly look into Barry Rosenstein’s, Jana Partners’, portfolio. This hedge fund with a portfolio worth more than $7 billion is a value-oriented, event-driven investment firm that has been around for about 12 years. Over the past few years, its strategy has been all about “ignoring the crowd” – a sentiment that can be tracked at the firm’s moves.

Barry Rosenstein JANA PARTNERS

Jana´s Most Valuable Holdings: Chemicals

Although Jana’s most valuable asset is a put option on the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), we like to look at long stock holdings. This is the case for Agrium Inc. (USA) (NYSE:AGU), a producer and provider of agricultural products and nutrients in North and South America. Mr. Rosenstein’s fund owns 8,186,575 shares (down from 11,329,696 on the previous quarter) of the company, valued at roughly $742 million. This makes of this agricultural chemicals company Jana´s largest known long position.

This investment certainly makes sense as increasing demand for food will most likely drive growth for the firm in the years to come. However, the stock has been quite beaten up this year and growth projections amongst analysts are not so encouraging.

It seems Mr. Rosenstein is quite into the chemical industry, as its third most valuable holding is Ashland Inc. (NYSE:ASH), a  specialty chemicals company. Over the third quarter, the fund increased its participation in the company by 16.5% (quarter over quarter), to 6,667,269 shares. These are valued at approximately $444.5 million. Although Jana’s stake in Ashland is of an activist nature -it seeks to create shareholder value-stimulation scenarios- the stock is also attractive from a fundamental point of view.

An Apple A Day…

Amongst Jana´s top 10 holdings during Q2 was Health Management Associates Inc (NYSE:HMA), a healthcare services company. However, it seems that Mr. Rosenstein wants to keep doctors away: over Q3, the fund sold out its entire stake at this firm. The move was most likely motivated by Health Management Associates´ unclear prospects, an expansion rate that is expected to decelerate, plenty of debt in relation to its assets, and razor thin margins and returns.

As healthcare reforms make the future uncertain, the fund also sold its participation at Community Health Systems (NYSE:CYH), another healthcare services provider.

However, its position regarding pharmaceutical companies is the opposite. Over the third quarter, Jana added Opko Health Inc. (NYSE:OPK) and Endo Health Solutions Inc (NASDAQ:ENDP) to its portfolio, probably due to their increasing sales and competitive advantages.

A Thing for Services

Apart from the aforementioned companies, the rest of Jana´s top 15 picks are mostly composed of diverse types of services companies, amongst which I could highlight Equinix Inc (NASDAQ:EQIX) and Verisign, Inc. (NASDAQ:VRSN), two IT services firms poised to deliver above average EPS growth rates over the next five years.

Disclosure: none