In this article, we will look at activist investor Jeff Smith’s top 5 stock picks for 2022. If you want to read about his investment philosophy and his hedge fund’s performance, you can go to Activist Investor Jeff Smith’s 2022 Portfolio: Top 10 Stock Picks.
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. (NASDAQ:NLOK) 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. (NASDAQ:NLOK) 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. (NASDAQ:NLOK) 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. (NASDAQ:NLOK). 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 (NASDAQ:WLTW) 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 (NASDAQ:WLTW) 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 (NASDAQ:WLTW) 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 (NASDAQ:WLTW) 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 (NYSE:ACM) 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 (NYSE:ACM) are valued at $545.09 million, which covers 7.22% of the fund’s 13F portfolio.
This May AECOM (NYSE:ACM) 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 (NYSE:ACM) reported earnings per share of $0.83, beating expectations by $0.05. As of June 2, AECOM (NYSE:ACM) has returned 9.12% to investors over the past twelve months.
On May 10, Baird analyst Andrew Wittmann cut his price target on AECOM (NYSE:ACM) 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 (NYSE:ACM) 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 (NYSE:HUN) 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 (NYSE:HUN) to $40 from $46 but maintained a Buy rating on the shares.
On April 28, Huntsman Corporation (NYSE:HUN) 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 (NYSE:HUN) 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. (NYSE:GDDY) 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. (NYSE:GDDY) 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. (NYSE:GDDY) 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. (NYSE:GDDY) 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. (NYSE:GDDY) 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. (NYSE:GDDY) 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.
