Iridian Asset Management is an independently-owned, value-oriented investment management firm. Its 13F portfolio had $13.4 billion as of December 31, 2016, which were invested in its U.S. mid-cap and alternative strategies. The company was started in 1996 by David Cohen and Harold Levy. The philosophy of the fund is to invest in “corporate change”, as they believe that while markets are generally efficient in determining value, they regularly fail to discount the long-term strategic and investment implications of dramatic structural changes in a company or industry. Their investment process is built on bottom-up research and they use mostly in-house generated fundamental research to identify companies undergoing said “corporate change” and generating large amounts of free cash flow.
In the following article we’ll look at a few of the fund’s top positions as of the end of the fourth quarter of 2016, based on its recent 13F filing with the SEC. The filing showed that the fund had a modest turnover percentage of 32.53% during the fourth quarter, and that its 13F portfolio was valued at $10.83 billion at the end of 2016, down slightly from $11.44 billion a quarter earlier.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.
General Dynamics Corporation (NYSE:GD) was Iridian Asset Management’s top holding on December 31, with the position of 2.83 million shares having a value of $489 million at the end of 2016. The fund increased its holding in the defense stock by 69,981 shares during the fourth quarter. General Dynamics Corporation (NYSE:GD) is also a favorite of Dan Loeb’s Third Point, which increased its stake in the stock by 280% to 1.35 million shares worth $209 million at the end of September. The aerospace defense company has risen by 37% over the last year, mainly driven by Donald’s Trump campaign promise to substantially increase defense spending. The company recently entered the hallowed ranks of dividend aristocrats, which means that it has an unbroken track record of paying and increasing dividends over the last 25 consecutive years. With a dividend yield of 1.66%, General Dynamics Corporation (NYSE:GD) is the only major defense stock to be a part of this elite group. The number of hedge funds in our system holding the stock declined to 40 at the end of September from 51 at the end of June.
During the fourth quarter, Iridian Asset Management added 1.03 million shares of Lowe’s Companies, Inc. (NYSE:LOW) to its portfolio, making it the fund’s third-largest holding at 5.97 million shares valued at $425 million. The company, which is one of the largest home improvement retailers in the U.S has underperformed the market over the last year, giving a measly return of 2%. A majority of analysts view Lowe’s Companies, Inc. (NYSE:LOW) in a neutral manner, with 11 out of the 16 analysts covering the stock rating it as a ‘Hold’. Lowe’s Companies’ management recently announced a major restructuring exercise by cutting thousands of workers and shuffling the jobs of thousands of others. It also announced a $5 billion buyback program. The number of hedge funds in our system holding the stock inched up slightly to 68 at the end of September from 67 on June 30. Andreas Halvorsen‘s Viking Global initiated a new position in the stock during the September quarter, buying 2.7 million shares with a value of $195 million.
We’ll check out three more top stock picks of Iridian Asset Management on the next page.