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Starboard Value’s Bullish Moves and Top Picks For 2016

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New York-based activist hedge fund Starboard Value LP and its founder Jeffrey Smith have gained a lot of recognition in the last few years for their campaigns involving several large corporations. However, it looks like those crusades weren’t quite fruitful for the firm in 2015. According to our analysis of Starboard Value LP’s 13F holdings in companies worth over $1 billion, its 20 long positions delivered a weighted average loss of 10.7% in 2015. According to its latest 13F filing, the fund made some notable changes  in its portfolio during the last quarter of 2015. Starboard Value’s equity portfolio at the end of December was worth $3.71 billion, but its top 10 holdings accounted for nearly 74% of the value. In this post, we will take a look at the two biggest bullish moves made by the fund during the fourth quarter and analyze its top three equity holdings.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points in our backtests covering the period between 1999 and 2012 (see the details here).

Jeffrey Smith
Jeffrey Smith
Starboard Value LP

Baxter International Inc (NYSE:BAX)

– Shares Owned by Starboard Value LP (as of December 31): 2.4 million

– Value of Holding (as of December 31): $91.56 million

The 16% rise of the stock during the fourth quarter and Starboard Value LP increasing its stake in the company by 92% helped Baxter International Inc (NYSE:BAX) to become the fund’s eleventh largest equity holding at the end of December. The healthcare major is among the few stocks this year that is trading in the green currently. Despite the strong performance, some analysts feel that it is still undervalued since it currently trades at a price-to-earnings multiple of 21.76 and trailing price-to-sales multiple of 2.06 versus industry averages of 24.69 and 2.72, respectively. On February 3, analysts at BMO Capital Markets reiterated their ‘Market Perform’ rating on the stock, but upped their price target to $38 from $33. Ken Griffin‘s Citadel Investment Group more than quadrupled its stake in Baxter International Inc (NYSE:BAX) to almost 7.55 million shares during the fourth quarter.

Follow Baxter International Inc (NYSE:NYSE: BAX)
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Four Corners Property Trust Inc (NYSE:FCPT)

– Shares Owned by Starboard Value LP (as of December 31): 3.87 million

– Value of Holding (as of December 31): $93.7million

After months of pushing Darden Restaurants, Inc. (NYSE:DRI) to hive off its real estate holdings, Starboard Value’s plan was materialized last November when the former spun off Four Corners Property Trust (NYSE:FCPT) into an independent publicly-traded company. Four Corners Property Trust Inc (NYSE:FCPT) represented Starboard Value’s largest new position at the end of December. Shares of Four Corners Property Trust are currently trading 34% down year-to-date, with most of the declines coming in after the company announced a dividend of $8.32 per share in early-January. On January 27, analysts at JMP Securities reiterated their ‘Market Perform’ rating on the stock, but lowered their price target on it to $19.50 from $27.50.

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