If one starts a discussion on activist investors or their campaigns today, there is only a slim possibility that the name Starboard Value LP won’t come up. In the last five years since its separation from Ramius in 2011, the fund headed by Jeffrey Smith has launched 46 activist campaigns against the mightiest corporations in America and has achieved success in a number of them. However, this article isn’t about the fund’s growing reputation as the leading activist investor on the Street. Rather, we are more interested in the fund’s performance and how its investments have been doing in the past few months, regardless of whether they were active or passive stakes. An analysis done by Insider Monkey of Starboard Value LP’s 13F holdings in companies worth at least $1 billion shows that the 17 long positions held by the fund delivered a weighted average return of 6.5% during the first quarter versus flat returns generated by the broader market during the same period. Since the fund is performing relatively well, in this post, we are going to take a look at five stocks that helped it the most in generating positive returns during the first quarter.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
Let’s start with diversified healthcare company Baxter International Inc (NYSE:BAX). After having initiated a stake during the third quarter, Starboard Value LP boosted it by 92% to 2.4 million shares during the fourth quarter. Baxter International Inc (NYSE:BAX) made headlines last year after Dan Loeb‘s Third Point, another activist investor, initiated a position in the company and managed to get its nominees on the company’s Board. At the end of 2015, Third Point was the largest shareholder of Baxter International Inc (NYSE:BAX) among funds covered by us with ownership of 53.85 million shares of the company. Shares of Baxter International Inc ended the third quarter with gains of 8% and are currently trading up 9.5% year-to-date. On March 11, Baxalta Inc (NYSE:BXLT), which was spun off from Baxter International last year, filed to sell $2.34 billion worth of shares owned by Baxter International in a debt-for-equity deal. After the completion of this transaction, Baxter International’s stake in Baxalta (NYSE:BXLT) was cut to 4.5% from 13.8%. However, the company plans to unload its entire stake in Baxalta (NYSE:BXLT) in the coming months through similar debt-for-equity exchanges.