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Activist Jeff Smith’s Five Favorite Stock Picks

For almost a decade and a half, Jeffrey Smith‘s billion dollar activist hedge fund, Starboard Value, has struck fear in the management suite of his targets. Smith is willing to do whatever it takes, including fighting with entrenched management in proxy fights, to unlock value for shareholders. Seeing as Starboard Value’s annual return has averaged around 16% since 2002, Smith has done an admirable job unlocking value for his fund holders and for the shareholders of his target companies. Given that Starboard Value recently filed its 13F for the first quarter, let’s take a closer look at the fund’s top picks of Yahoo! Inc. (NASDAQ:YHOO), Darden Restaurants, Inc. (NYSE:DRI), Advance Auto Parts, Inc. (NYSE:AAP), Marvell Technology Group Ltd. (NASDAQ:MRVL), and WestRock Co (NYSE:WRK).

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

Jeffrey Smith
Jeffrey Smith
Starboard Value LP

#5 WestRock Co (NYSE:WRK)

Shares held (as of March 31): 4.57 million

Total Value (as of March 31): $178.22 million

Percent of Portfolio (as of March 31): 6.27%

Starboard raised its stake in WestRock Co (NYSE:WRK) by 2% to 4.57 million shares during the first quarter. That translates to a stake of $178.2 million, worth 6.26% of Starboard’s equity portfolio. WestRock reported strong fiscal second quarter earnings of $0.61 per share on revenue of $3.7 billion in April. The company delivered solid operating results in its consumer and corrugated packaging segment and realized $350 million in run-rate synergies from the combination between Rock-Tenn Company and MeadWestvaco Corporation in 2015. Although shares of WestRock have rallied since February, the stock is arguably still cheap with a forward P/E of 13.6.

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#4 Marvell Technology Group Ltd. (NASDAQ:MRVL)

Shares held (as of March 31): 20.4 million

Total Value (as of March 31): $210.3 million

Percent of Portfolio (as of March 31): 7.39%

Marvell Technology Group Ltd. (NASDAQ:MRVL) was a new position for Starboard in the first quarter. Smith’s fund bought 20.4 million shares, worth $210.3 million, which accounted for 7.39% of the equity portfolio at the end of March. On the account of increased industry oversupply, the company has faced some top-line pressures and had to restructure its mobile chip division to improve earnings. Because of the poor performance, the company’s founder and CEO, Sehat Sutardja resigned in early April, and later that month, Marvell entered into an agreement with Starboard Value LP, under the terms of which the hedge fund got to add four representatives to the company’s board of directors. Starboard will most likely push for major cost cuts or strategic initiatives to unlock shareholder value. Cliff Asness’ AQR Capital Management is another major shareholder of Marvell Technology.

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