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When Billionaire Activist Barry Rosenstein Buys These Stocks, You Sell Them

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Billionaire Barry Rosenstein is the founder and portfolio manager of activist hedge fund JANA Partners. He founded the event-driven fund in 2001 and follows an activist approach similar to those employed by Carl Icahn and other famous activists. Rosenstein buys large stakes in companies and then pushes them to restructure, leading to value accretion for investors. While JANA Partners’ overall track record since inception has been quite good, his recent performance has been poor. The fund reported a loss in 2015 and has not fared well in 2016.

Rosenstein also appears to have deficiencies in his investing. We backtested JANA’s top-5 large-cap picks between 2003 and 2012 and found that those stocks gave a value-weighted, average monthly return of 0.35%, compared to the S&P 500’s 0.65% returns over the same time. Thus, JANA Partners’ picks underperformed by an average of 0.3 percentage points per month during that ten-year period. With that in mind, investors may look to avoid the top large-cap picks of JANA Partners given its track record, and we’ll discuss some of those picks in this article.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Barry Rosenstein JANA PARTNERS

Conagra Brands Inc (NYSE:CAG) is the biggest stock holding of JANA Partners as of September 30, with the fund holding 17.8 million shares worth $838 million. The food company accounted for 14.74% of the value of JANA’s 13F portfolio. The performance of the company’s shares has been poor in 2016, with a loss of 9%. Shares are also trading just 20% above their 52-week low. Conagra Brands Inc (NYSE:CAG) announced a spin-off of its Lamb Weston business in October and increased its stock repurchase program to $1.25 billion.

At the end of the third quarter, 50 funds in our system were long Conagra Brands Inc (NYSE:CAG), holding shares worth $2.76 billion and constituting 12% of the company’s float. Dan Loeb‘s Third Point and John Overdeck and David Siegel’s Two Sigma Investments were the biggest buyers of this stock during the third quarter. D E Shaw and Ratan Capital Management also bought a large chunk of Conagra Brands Inc (NYSE:CAG) shares during the September quarter.

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JANA Partners substantially increased its holding in Marathon Petroleum Corp (NYSE:MPC) during the third quarter. It bought 1.6 million shares of the energy company to take its total holding to 4.3 million shares worth $177 million at the end of the September quarter. The stock has been a successful investment for the fund in the past, when JANA Partners successfully campaigned for the company to spin-off its midstream assets. The fundamentals of Marathon Petroleum Corp (NYSE:MPC) have improved alongside rising crude oil prices. The stock price has also increased by 16% over the last 3 months, though its remain flat over the last year. Activist fund Elliott Management recently told management that the company is undervalued and suggested breaking up the firm.

D E Shaw and Cliff Asness‘ AQR Capital Management were bearish on Marathon Petroleum in the third quarter, as they sold off large positions during the period. OZ Management was the third-biggest seller of the stock, liquidating its entire position. According to our database, the number of funds owning Marathon Petroleum Corp (NYSE:MPC) increased by 10 to 53 in the third quarter, and the value of their holdings also went up by almost 4% to $2.79 billion quarter-over-quarter.

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We’ll check out three more of the fund’s large-cap stock picks on the next page.

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