Buffett, Starboard Among the Elite Investors to Disclose New Moves

The deadline for the current round of 13F filings, for the quarterly period that ended December 31, is February 15. Most market participants find these quarterly filings informative, as they reveal the top stock picks of the world’s most successful investors and hedge fund managers. However, most hedge fund firms tracked by Insider Monkey tend to submit their 13Fs very close to the deadline, so it might take a while until individual investors get to know hedge funds’ investment ideas for 2016. However, one can also examine funds’ 13D, 13G and Form 4 filings, which disclose up-to-date insights about managers’ moves in certain key positions. Having said that, this article discusses four such filings submitted by renowned hedge funds monitored by our team.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

According to a freshly-amended 13D filing, Jeffrey Smith’s Starboard Value LP owns approximately 10.34 million shares of Darden Restaurants Inc. (NYSE:DRI), which account for 8.1% of the company’s outstanding common stock. This compares with the 11.64 million-share position revealed by Starboard in its 13F filing for the September quarter. The 13D filing disclosed that the activist firm offloaded a portion of its stake in the owner of full-service dining restaurants as part of a rebalancing process, thanks to the significant appreciation of the company’s stock since Starboard submitted its initial 13D more than two years ago. At the same time, the reputable activist hedge fund also revealed its plans to remain a large shareholder of Darden Restaurants, with Jeffrey Smith slated to continue serving as the company’s Chairman and a member of its Board of Directors.

Darden Restaurants Inc. (NYSE:DRI)’s stock has advanced by almost 22% over the past two-year period and by 4% in the past year. It seems that Starboard is cashing out at an opportune time, if bearing in mind the company’s valuation metrics. The stock trades at a trailing price-to-earnings ratio of 22.21, which is slightly above the average of 21.63 for the companies included in the S&P 500 Index. Furthermore, its forward P/E of 16.33 slightly tops the forward P/E ratio for the S&P 500, which stands at 15.75. The number of hedge funds from our database with positions in the company declined to 33 from 38 during the July-to-September period, though the value of their positions grew to $1.35 billion from $1.22 billion quarter-over-quarter. Jim Simons’ Renaissance Technologies acquired a 690,800-share stake in Darden Restaurants Inc. (NYSE:DRI) during the third quarter.

The following two pages of this article reveal three separate moves made by Arrowgrass Capital Partners, Warren Buffett’s Berkshire Hathaway, and Redmile Group.

In a Schedule 13G filing, Nick Niell’s Arrowgrass Capital Partners reported owning 5.99 million shares of OmniVision Technologies Inc. (NASDAQ:OVTI), accounting for 9.99% of the company’s shares. This denotes an increase of 3.47 million shares relative to the position disclosed through the fund’s 13F filing for the third quarter. On April 30, the designer and developer of high-performance and cost-efficient semiconductor image-sensor devices announced that it had agreed to be bought by a consortium that comprised Hua Capital Management, CITIC Capital Holdings Limited, and GoldStone Investment. The terms of the merger agreement say that OmniVision shareholders are set to receive $29.75 per share in cash. In the meantime, shares of OmniVision Technologies Inc. (NASDAQ:OVTI) are trading approximately $1 below the deal price, so it is highly likely that Arrowgrass Capital Partners is either betting on the successful completion of the aforementioned deal. The transaction is anticipated to close in the third or fourth-quarter of 2016, as it is still subject to regulatory approval in the People’s Republic of China. A total of 23 smart money investors held stakes in the company at the end of the third quarter, amassing 14.50% of its outstanding shares. Robert Emil Zoellner’s Alpine Associates owns 1.37 million shares in OmniVision Technologies Inc. (NASDAQ:OVTI) as of September 30.

As stated by a Form 4 filing, Warren Buffett’s Berkshire Hathaway purchased 1.65 million shares of Phillips 66 (NYSE:PSX) on Thursday, at prices that ranged from $75.94 per share and $78.11 per share. After the recent purchase, Berkshire Hathaway owns 63.94 million shares of the oil refiner. The energy manufacturing and logistics company, which operates midstream, chemicals, refining, and marketing and specialties businesses, has seen its stock decline by 17% since the beginning of December. Even so, the stock is up by 29% over the past year and trades at attractive price-to-earnings ratios. It is believed that Buffett invests in Phillips 66 (NYSE:PSX) for its balance of chemical and refining businesses. The company’s net income for the nine months that ended September 30 totaled $3.58 billion, down from $3.62 billion reported for the same period of the prior year. Phillips’ refining business greatly benefited from the depressed crude oil prices in 2015, as the spread between market prices for refined petroleum products and crude oil increased substantially. The average market crude oil prices declined by more than the average market gasoline prices, resulting in stronger refining margins for the company. 33 hedgies from our database were invested in Phillips 66 at the end of the third quarter, compared with 35 at the end of the prior quarter. D.E. Shaw & Co. L.P., founded by David E. Shaw, holds a stake of 9.94 million shares in Phillips 66 (NYSE:PSX) as of the end of the third quarter.

According to a separate Form 4 filing, Jeremy Green’s Redmile Group purchased 925,000 shares of Array Biopharma Inc. (NASDAQ:ARRY) at prices that fell between $3.46 per share and $3.85 per share. Following the recent purchases, Redmile Group holds an ownership stake of 18.78 million shares in the biopharmaceutical company. Array Biopharma Inc. (NASDAQ:ARRY) focuses on discovering and developing targeted small molecule drugs to treat patients afflicted with cancer. The company is currently conducting three pivotal trials of binimetinib and/or encorafenib: COLUMBUS, which studies encorafenib in combination with binimetinib in BRAF-mutant melanoma patients; NEMO, which examines binimetinib in NRAS-mutant melanoma patients; and MILO, which studies binimetinib in low-grade serous ovarian cancer patients. In December, the company reported top-line results from its NEMO trial of binimetinib in patients with NRAS-mutant melanoma.

The number of hedge funds from our database with stakes in the company increased to 22 from 21 during the third quarter. Samuel Isaly’s Orbimed Advisors reported owning 10.06 million shares of Array Biopharma Inc. (NASDAQ:ARRY) in its 13F for the third quarter. Shares of the company have declined by 21% over the past year.

Disclosure: None