In this article, we will look at activist investor Jeff Smith’s top 10 stock picks for 2022.
Jeff Smith is an American investor and hedge fund manager of Starboard Value. He is an alumnus of the University of Pennsylvania from where he graduated in 1994 with an undergraduate degree in economics. He founded Starboard Value in 2002. Starboard Value is an activist hedge fund that targets significantly undervalued small-cap stocks. The activist hedge fund generated a median annualized return of 15.5% per year from inception up to 2014. Roughly 84% of the fund’s activist campaigns have been a success. As of the first quarter of 2022, Jeff Smith manages over $7.54 billion in 13F securities through his hedge fund.
Jeff Smith has been dubbed “the most feared man in corporate America” by William Cohan of Fortune after he took over Darden Restaurants in October 2014. Darden Restaurants is a Fortune 500 company best known for its Olive Garden and Longhorn Steakhouse brands. Jeff Smith is among the most aggressive activist investors and has gained widespread popularity in the hedge fund industry due to his contrarian investment strategies similar to those of billionaire Carl Icahn.
Taking a look at Starboard Value’s performance over the past eight quarters, the fund’s quarter-on-quarter returns were up to 37.81% in the first quarter of 2020, its best quarter in the last two years. In the first quarter of 2021, the fund recorded quarter-on-quarter returns of 4.37%, and moving on to the first quarter of 2022, the fund’s returns were down 11.21%. In the first quarter of 2022, Starboard Value initiated 89 new positions, sold out 55 stocks, and reduced its stakes in 66 companies. The fund has a top ten holdings concentration of 60.2%.
Starboard Value has a diversified 13F portfolio and has investments across basic materials, healthcare, technology, financial services, industrials, and consumer cyclical sectors among others. Among the fund’s top 13F holdings we have AECOM (NYSE:ACM), Huntsman Corporation (NYSE:HUN), and GoDaddy Inc. (NYSE:GDDY).
Our Methodology
To determine the top 10 stock picks of activist investor Jeff Smith, we did a comprehensive assessment of Starboard Value’s 13F portfolio. We picked the fund’s top 10 holdings at the end of the first quarter of 2022 and ranked them in increasing order of Starboard Value’s stake in them.
For each stock, we included the analyst and investor sentiment around it. We derived the hedge fund sentiment from Insider Monkey’s database, which as of the first quarter of 2022, tracks over 900 elite hedge funds.
Now that we have crunched some numbers, let’s look at the activist hedge fund’s top 10 picks.
Activist Investor Jeff Smith’s 2022 Portfolio: Top 10 Stock Picks
10. CommVault Systems, Inc. (NASDAQ:CVLT)
Starboard Value’s Stake Value: $254,553,000
Percentage of Starboard Value’s 13F Portfolio: 3.37%
Number of Hedge Fund Holders: 22
Commvault Systems, Inc. (NASDAQ:CVLT) provides data protection and information management software applications and related services in the United States and internationally. As of March 31, Starboard Value owns more than 3.8 million shares of the company which amounts to a stake of $254.55 million. The investment covers 3.37% of Starboard Value’s 13F portfolio.
This May Commvault Systems, Inc. announced earnings for the fiscal fourth quarter of 2022 in which it beat both EPS and revenue estimates. The company reported earnings per share of $0.75, beating expectations by $0.11. Commvault Systems, Inc. generated revenues of $205.95 million, up 7.63% year over year, and outperformed market consensus by $3.97 million.
As of this January, RBC Capital analyst Dan Bergstrom has a $75 price target and Sector Perform rating on Commvault Systems, Inc..
At the close of Q1 2022, 22 hedge funds were long Commvault Systems, Inc. with stakes worth $460.39 million in the company. This is compared to 19 positions in the previous quarter with stakes of $511.06 million.
9. Papa John’s International, Inc. (NASDAQ:PZZA)
Starboard Value’s Stake Value: $290,505,000
Percentage of Starboard Value’s 13F Portfolio: 3.85%
Number of Hedge Fund Holders: 27
Papa John’s International, Inc. operates and franchises pizza delivery and carryout restaurants in the United States and internationally. As of the first quarter of 2022, 27 hedge funds are bullish on Papa John’s International, Inc.. The total stakes of these hedge funds were valued at $608.60 million. This is compared to 36 positions in the previous quarter with stakes of $707.63 million.
On May 5, Papa John’s International, Inc. released earnings for the fiscal first quarter of 2022. The company registered an EPS of $0.29, missing expectations by $0.60. Papa John’s International, Inc. reported revenues of $542.69 million, up 6.05% year over year, beating Wall Street expectations by $2.31 million. On May 11, UBS analyst Dennis Geiger trimmed his price target on Papa John’s International, Inc. to $93 from $144 and maintained a Neutral rating on the shares
As of March 31, Starboard Value owns over 2.75 million shares of Papa John’s International, Inc., which brings its stakes in the company to $290.50 million. The investment represents 3.85% of Starboard Value’s 13F portfolio.
Like AECOM, Huntsman Corporation, and GoDaddy Inc., Starboard Value has significant stakes in Papa John’s International, Inc..
Here is what Artisan Partners had to say about Papa John’s International, Inc. in its ‘Artisan Small Cap Fund’ third-quarter 2021 investor letter:
“Papa John’s is a global operator and franchisor of pizza delivery and carryout restaurants. The company is tracking nicely against our turnaround thesis which hinges upon an improvement in store-level economics leading to accelerating growth in restaurant development activity. Improved store-level economics is being driven in part by market share gains resulting from menu innovation. New menu items—parmesan crusted Papadias, Epic Stuffed Crust, Shaq-a-roni— coupled with enhancements to the digital/loyalty platform and supportive advertising are attracting new customers to the brand, increasing frequency of its existing customers and driving higher unit volumes and returns. As a result, the company is experiencing incremental interest from new and existing franchisees to develop new restaurants. Papa John’s opened a record 123 units in the first half of 2021 and now expects to open 220-260 new stores this year (vs. 140-180 previously)—most of which are outside of the US. Combined with ample white space globally, we believe a higher unit growth trajectory will drive an attractive and sustainable profit cycle.”
8. Corteva, Inc. (NYSE:CTVA)
Starboard Value’s Stake Value: $344,669,000
Percentage of Starboard Value’s 13F Portfolio: 4.56%
Number of Hedge Fund Holders: 39
Corteva, Inc. (NYSE:CTVA) operates in the agriculture business through two primary business segments: Seed and Crop Protection. On May 4, Corteva, Inc. posted earnings for the fiscal first quarter of 2022. The company registered an EPS of $0.97 and outperformed market consensus by $0.16. Corteva, Inc. generated revenues of $4.60 billion, 10.12% year over year, beating estimates by $135.82 million. As of June 2, the stock has gained 37.10% over the past twelve months.
This June, Barclays analyst Benjamin Theurer initiated coverage of Corteva, Inc. with an Overweight rating and a $71 price target.
By the end of the first quarter of 2022, 39 hedge funds held stakes in Corteva, Inc.. The total value of these stakes came in at $1.35 billion, of which $344.66 million is attributed to Starboard Value. This is compared to 42 hedge funds in the previous quarter with stakes of $1.33 billion.
Aristotle Capital Management recently published its “Aristotle Capital Management Value Equity Fund” first-quarter 2022 investor letter in which it mentioned Corteva, Inc.. Here is what the firm had to say:
“Corteva Agriscience, one of the world’s largest seed and crop protection companies, was a primary contributor for the quarter. Due to its respected brand and the value-added benefits of its patented seeds and crop protection solutions for farmers, Corteva has been able to more than offset input cost inflation with sustainable price increases. In addition, the company’s ongoing mix shift to higher-margin, premium products, a catalyst we previously identified, is aiding both sales and profit growth. Shares were likely also buoyed by the rise in crop prices. Market participants, perhaps eager to chase short-term trends, poured into the sector. At Aristotle Capital, we look past such gyrations and, as long-term investors, do not attempt to predict short-term changes in commodity prices. We remain excited about what we view to be high-quality characteristics and fundamental improvements that permeate Corteva’s business, not the least of which include its pricing power.”
7. ON Semiconductor Corporation (NASDAQ:ON)
Starboard Value’s Stake Value: $414,333,000
Percentage of Starboard Value’s 13F Portfolio: 5.49%
Number of Hedge Fund Holders: 48
ON Semiconductor Corporation (NASDAQ:ON) provides intelligent sensing and power solutions worldwide. Its intelligent power technologies have applications in the electric vehicle industry, fast-charging systems, solar energy systems, industrial power, and storage systems. As of the first quarter of 2022, Starboard Value owns more than 5.99 million shares of the company which brings its stakes to $414.33 million. The investment represents 5.49% of Starboard Value’s 13F portfolio.
This May, ON Semiconductor Corporation released market-beating earnings for the fiscal first quarter of 2022. The company reported earnings per share of $1.22 and beat EPS estimates by $0.17. ON Semiconductor Corporation generated revenues of $1.95 billion, up 31.27% year over year, exceeding revenue expectations by $38.40 million.
On May 11, Wells Fargo analyst Gary Mobley raised his price target on ON Semiconductor Corporation to $65 from $58 and upgraded the stock to Overweight from Equal Weight.
At the end of Q1 2022, 48 hedge funds were bullish on ON Semiconductor Corporation with stakes worth $1.31 billion. This is compared to 47 positions in the fourth quarter of 2021 with stakes worth $1.60 billion.
Artisan Partners, a high value-added investment management firm, mentioned several companies in its ‘Artisan Mid Cap Fund’ fourth-quarter 2021 investor letter, one of which was ON Semiconductor Corporation. Here is what the firm said:
“ON Semiconductor is a global supplier of advanced semiconductors for sophisticated electronics applications within the automotive, industrial, communications, consumer and computing end-product markets. The company operates across three segments: power solutions, advanced solutions and intelligent sensing. A new management team, which took over toward the end of 2020, is working to dramatically improve the company’s performance by rightsizing its manufacturing footprint, exiting more commoditized products and investing in several compelling growth opportunities. When the dust has settled, we expect the portfolio to be more focused on the auto and industrial segments. As auto OEMs incorporate more automated safety technology and car fleets transition from internal combustion engines to battery electric vehicles, ON’s image sensors for cars and silicon carbide inverters— which extend EV battery efficiency—will be in high demand. This mix shift should drive ON’s margins higher over time. With shares trading at an attractive valuation, we initiated a GardenSM position.”
6. Humana Inc. (NYSE:HUM)
Starboard Value’s Stake Value: $421,332,000
Percentage of Starboard Value’s 13F Portfolio: 5.58%
Number of Hedge Fund Holders: 66
Humana Inc. (NYSE:HUM) operates as a health and well-being company in the United States through three primary business segments: Retail, Group and Specialty, and Healthcare Services. On April 27, Humana Inc. posted earnings for the fiscal first quarter of 2022. The company reported an EPS of $8.04, beating estimates by $1.24. Humana Inc. reported quarterly revenues of $23.97 billion, up 15.98% year over year, and outperformed revenue estimates by $436.15 million. Moreover, the stock’s trailing-twelve-month returns are up 4.39% as of June 2.
This May, Bernstein analyst Lance Wilkes resumed coverage of Humana Inc. with a Market Perform rating and a price target of $506, up from $480.
Humana Inc. is a new buy of Starboard Value and is also among the fund’s top 10 holdings. As of March 31, Starboard Value’s stake in the company is valued at $421.33 million, which covers 5.58% of its investment portfolio.
At the close of the first quarter of 2022, 66 hedge funds held stakes in Humana Inc. worth $3.11 billion. This is compared to 66 hedge funds in the previous quarter with stakes worth $3.87 billion.
Jeff Smith is bullish on Humana Inc. and the stock is ranked among his fund’s top 13F holdings. Other companies that Jeff Smith’s Starboard Partners is heavily invested in include AECOM, Huntsman Corporation, and GoDaddy Inc..
5. NortonLifeLock Inc. (NASDAQ:NLOK)
Starboard Value’s Stake Value: $443,002,000
Percentage of Starboard Value’s 13F Portfolio: 5.87%
Number of Hedge Fund Holders: 42
NortonLifeLock Inc. (NASDAQ:NLOK) operates as a cybersecurity firm that provides cyber safety solutions for consumers in the United States, Canada, Latin America, Europe, the Middle East, Africa, the Asia Pacific, and Japan. This May, the company reported earnings for the fiscal fourth quarter of 2022. NortonLifeLock Inc. registered an EPS of $0.46, outperforming EPS estimates by $0.01. The company’s revenues came in at $716 million, up 6.55% year over year, beating expectations by $6.38 million. Moreover, as of June 2, the stock has gained 2.41% over the past six months and has a forward PE ratio of 13.46, along with a dividend yield of 2.05%.
On May 9, Baird analyst Jonathan Ruykhaver trimmed his price target on NortonLifeLock Inc. to $28 from $31 and reiterated an Outperform rating on the shares.
By the end of the first quarter of 2022, 42 hedge funds were long NortonLifeLock Inc. with stakes worth $1.21 billion. This is compared to 36 hedge funds in the prior quarter with stakes of $1.37 billion.
ClearBridge Investments named several companies in its “All Cap Value Strategy” fourth-quarter 2021 investor letter, one of which was NortonLifeLock Inc.. Here is what experts at ClearBridge had to say about the stock:
“However, not every example has a cyclical dynamic. Consumer cybersecurity company NortonLifeLock undoubtedly benefited from the COVID-19 pandemic lockdowns as sales of personal computers and time spent online skyrocketed, as did subscriptions to the company’s security products. The market has lumped Norton into the “COVID winners” bucket and embedded a substantial reduction in subscriptions going forward as the company laps its strong results from the depths of the pandemic. While these concerns are reasonable for many within the COVID winner cohort, it is not the case for Norton. Company-specific improvements in marketing and product development have been just as powerful tailwinds to subscriber growth and would have continued to carry the company’s growth through the most difficult comparisons from 2020 even without the pandemic effect. The market’s concern about tailwinds turning to headwinds is overwrought, and contrary to the decline currently embedded in the stock price, we are confident that Norton’s earnings will continue to compound. Similar to EQT and OneMain, NortonLifeLock has been actively putting its ample cash flow generation to work to crystalize upside for shareholders. In addition to strong dividends and share repurchase activity, last year Norton announced the acquisition of “freemium” competitor Avast. Already attractive from a pricing standpoint, the acquisition creates the potential to generate immense cost and revenue synergies as well as providing Norton a strong foothold outside the North American market and a broader customer acquisition funnel. Once the transaction closes in 2022, Norton will have growing free cash flow generation of $1.5 billion and a clear path to an EPS of $5, yet a resulting valuation of just 5x earnings power. Given the high-single-digit revenue growth that Avast brings to the table, we believe the continuation of a valuation this depressed for Norton is highly unlikely.”
4. Willis Towers Watson Plc (NASDAQ:WLTW)
Starboard Value’s Stake Value: $505,716,000
Percentage of Starboard Value’s 13F Portfolio: 6.7%
Number of Hedge Fund Holders: 49
Willis Towers Watson Plc (NASDAQ:WLTW) operates as an advisory, broking, and solutions company worldwide. At the end of Q1 2022, 49 hedge funds held stakes in Willis Towers Watson Plc worth $2.18 billion. This is compared to 66 positions in Q4 2021 with stakes worth $4.0 billion.
On April 28, Willis Towers Watson Plc posted earnings for the fiscal first quarter of 2022. The company reported earnings per share of $2.66, beating estimates by $0.16. Moreover, the company’s revenues were valued at $2.16 billion, down 16.60% year over year, missing expectations by $74.21 million.
As of March 31, Starboard Value owns 2.14 million shares of Willis Towers Watson Plc which brings its stakes in the company to $505.71 million. The investment covers 6.7% of Starboard Value’s 13F portfolio and ranks the stock fourth among the top 5 holdings of the hedge fund.
Here is what Artisan Partners had to say about Willis Towers Watson Plc in its ‘Artisan International Value Fund’ fourth quarter 2021 investor letter:
“During the quarter, we made meaningful new investments in two UK domiciled companies, (one of which is) Willis Towers Watson (WTW). Long-term investors will recognize Willis Towers Watson since it was in the portfolio from 2018 to early 2021. We exited that investment after WTW agreed to merge with Aon. Unfortunately for WTW and Aon, that proposed merger was rejected by the US Department of Justice in July 2021. In fact, there is significant market power in this industry, which is what makes it a great business. That market power is exerted not with the insurance brokers’ corporate customers, but with their suppliers (insurance underwriters). We were surprised at Aon’s attempted merger, and our concerns regarding antitrust approval encouraged us to sell.
WTW operates two businesses: insurance brokerage and HR consulting. Both are market-leading with attractive financial profiles and mostly recurring revenue streams. Despite these strengths, WTW operates with lower margins versus peers. The margin opportunity is most pronounced in the insurance brokerage business. Management has slowly increased the insurance brokerage margin over time, but a large gap remains with best-in-class peers like Marsh & McLennan and AJ Gallagher. Management presented a plan to increase the insurance brokerage business’s margins 5% by year-end 2024. This plan follows the outline other insurance brokers have previously used to increase their margins—giving us confidence the targets are achievable.
The merger’s demise brought a new and experienced CEO, a new CFO and a refreshed shareholder-aligned board of directors. In addition, the merger’s cancellation transformed the company’s financial
position. As part of the agreement, Aon paid WTW a $1 billion “break fee.” WTW also sold a re-insurance brokerage business for $3.25 billion along with the potential to earn $750 million through an earnout agreement. With the proceeds, WTW expects to repurchase approximately $4 billion of stock between the second half of 2021 and the end of 2022. With existing cash on hand and cash generation over the next three years, we estimate the company can return another $6 billion to shareholders through dividends and share repurchases representing over 20% of today’s market capitalization. We forecast earnings of approximately $20 per share in 2024—a price to earnings (P/E) ratio of 11.5X. We believe that valuation significantly undervalues this high-quality business.”
3. AECOM (NYSE:ACM)
Starboard Value’s Stake Value: $545,092,000
Percentage of Starboard Value’s 13F Portfolio: 7.22%
Number of Hedge Fund Holders: 32
AECOM provides professional infrastructure consulting services for governments, businesses, and organizations in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. As of March 31, Starboard Value’s stakes in AECOM are valued at $545.09 million, which covers 7.22% of the fund’s 13F portfolio.
This May AECOM posted earnings for the fiscal second quarter of 2022. The company generated revenues of $3.21 billion, down 1.59% year over year, and missing estimates by $179.80 million. AECOM reported earnings per share of $0.83, beating expectations by $0.05. As of June 2, AECOM has returned 9.12% to investors over the past twelve months.
On May 10, Baird analyst Andrew Wittmann cut his price target on AECOM to $81 from $88 and reiterated an Outperform rating on the shares.
By the end of the first quarter of 2022, 32 hedge funds were long AECOM with stakes worth $775.38 million. This is compared to 28 hedge funds in the preceding quarter with stakes worth $844.55 million.
2. Huntsman Corporation (NYSE:HUN)
Starboard Value’s Stake Value: $619,583,000
Percentage of Starboard Value’s 13F Portfolio: 8.21%
Number of Hedge Fund Holders: 36
Huntsman Corporation manufactures and sells differentiated organic chemical products worldwide. The company operates through four business segments: Polyurethanes, Performance Products, Advanced Materials, and Textile Effects. On May 2, Deutsche Bank analyst David Begleiter slashed his price target on Huntsman Corporation to $40 from $46 but maintained a Buy rating on the shares.
On April 28, Huntsman Corporation released earnings for the fiscal first quarter of 2022 in which it beat both EPS and revenue estimates. The company reported earnings per share of $1.19, exceeding expectations by $0.17. Moreover, the company’s revenues came in at $2.39 billion, up 30.05% year over year, beating market consensus by $104.39 million.
At the close of Q1 2022, 36 hedge funds held stakes in Huntsman Corporation worth $914.34 million. This is compared to 32 positions in the prior quarter with stakes worth $1.13 billion.
1. GoDaddy Inc. (NYSE:GDDY)
Starboard Value’s Stake Value: $690,560,000
Percentage of Starboard Value’s 13F Portfolio: 9.15%
Number of Hedge Fund Holders: 43
GoDaddy Inc. engages in the design and development of cloud-based technology products in the United States and internationally. It is the top holding of Starboard Value as of Q1 2022. As of March 31, Starboard Value owns more than 8.25 million shares of GoDaddy Inc. which brings its stakes in the company to $690.56 million. The investment covers 9.15% of Starboard Value’s 13F portfolio.
This May GoDaddy Inc. posted earnings for the fiscal first quarter of 2022. The company reported an EPS of $0.79, missing estimates by $0.06. Moreover, the company’s revenues came in at $1 billion, up 11.28% year over year, and outperforming Wall Street consensus by $13.50 million.
This May, Jefferies analyst Brent Thill lowered his price target on GoDaddy Inc. to $100 from $110 and reiterated a Buy rating on the shares.
By the end of the first quarter of 2022, 43 hedge funds were bullish on GoDaddy Inc. with stakes of $2.42 billion. This is compared to 41 hedge funds in Q4 2021 with stakes worth $2.85 billion.
Canterbury Tollgate mentioned GoDaddy Inc. in its third-quarter 2021 investor letter. Here is what the firm said:
“GoDaddy (GDDY) in particular sold off after reporting quarterly earnings in early August. Yet they are still growing the top line by more than 10 percent per annum. Short term pain creates opportunity. Presently GDDY trades at a greater than 5.5 percent trailing FCF yield, and a 7.2 percent 2021 yield based on my own (lower than consensus) estimation. Deferred revenue continues to improve. CEO Aman Bhutani and team have done an excellent job rebranding the company. I’m confident they will continue to address challenges along the way and keep GoDaddy on the right path.”
You can also take a look at 10 Best Dividend Stocks to Buy According to Billionaire Howard Marks and Barry Rosenstein and Jana Partners’ Top Stock Picks.
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This article is originally published at Insider Monkey.
