Earlier in August, Starboard Value, the value and activist hedge fund managed by Jeffrey Smith, filed its 13F with the SEC for the second quarter of 2013. This filing disclosed many of its long equity positions as of the end of June.
Why pay attention?
Insider Monkey tracks these filings as part of our work developing investment strategies; our findings include the fact that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio following this strategy outperformed the S&P 500 by 33 percentage points in the last 11 months. We can also look at individual funds’ filings to see what the fund is doing and if any of their investment ideas look worthy of further research.
What’s his next great investment idea?
Jeffrey Smith will be presenting his latest investment idea at the 9th New York Annual Value Investing Congress, the event CNBC dubbed “The Superbowl of Value Investing.” The event takes place September 16 & 17, 2013 at Jazz at Lincoln Center’s Frederick P. Rose Hall and some of the world’s most successful investors are slated to attend, including Jeff Ubben, Mick McGuire, and Alex Roepers, to name a few. In addition, this year’s event will feature a special presentation by Tyler and Cameron Winklevoss. For your special Insider Monkey discount, go to www.ValueInvestingCongress.
Read on for our quick take on Starboard’s five largest equity positions (the fund had a large stake in Smithfield Foods, Inc. (NYSE:SFD) but this was primarily through call options) as of the end of June or compare these picks to those in previous filings.
Smith and his team maintained a position of more than 42 million shares in Office Depot Inc (NYSE:ODP). The office supply store is expected to complete its merger with peer OfficeMax Inc (NYSE:OMX) by the end of this year. Competition from companies such as Amazon.com, Inc. (NASDAQ:AMZN) and big-box retailers has hurt the office supply industry, and Office Depot Inc (NYSE:ODP) is actually unprofitable on a trailing basis. The stock has more than doubled in the last year as bulls hope consolidation will help the company’s pricing power. Barry Rosenstein’s JANA Partners is another major Office Depot Inc (NYSE:ODP) shareholder (find JANA’s favorite stocks).
Integrated Device Technology Inc (NASDAQ:IDTI), a $1.3 billion market cap semiconductor company, was another of Starboard’s top picks. Wall Street analysts are expecting the company to deliver 37 cents in earnings per share for the current fiscal year (which ends in March 2014), a current-year P/E of more than 20. This is with Integrated Device Technology Inc (NASDAQ:IDTI)’s revenue falling 9% in its fiscal Q1 versus a year earlier, though the sell-side does expect some improvement in earnings per share in the following fiscal year. Billionaire Ken Griffin’s Citadel Investment Group reported a position of over 3 million shares as of the end of March (see Griffin’s stock picks).
The fund increased its stake in Compuware Corporation (NASDAQ:CPWR) to a total of 9.5 million shares. The enterprise software company was the target of a takeover bid by billionaire Paul Singer’s Elliott Management earlier this year (check out more stocks Elliott owns), which the company at least temporarily headed off by starting quarterly dividend payments of 12.5 cents per share. This gives Compuware Corporation (NASDAQ:CPWR) an annual yield of more than 4% at current prices and it continues to be a takeover prospect. With a struggling business and a forward earnings multiple of 19, however, bulls are fairly dependent on some sort of transaction here.
Since the beginning of 2013, Smith has built a significant position in Calgon Carbon Corporation (NYSE:CCC). The water and air treatment products company has been experiencing low earnings in the past few quarters (though adjusted numbers have generally beat analyst expectations), and as a result its trailing earnings multiple is more than 30. Sales have been down here as well (profits have increased but further increases from higher net margins alone are likely unsustainable) and with many market players bearish on the company 12% of the float is held short.
Rounding out our list of Starboard’s top equity picks is TriQuint Semiconductor (NASDAQ:TQNT), a $1.2 billion market cap company which focuses on semiconductor products for radio frequency applications. It is another company which has not been doing too well recently, reporting losses in each of the first two quarters of this year. Even with analysts expecting some improvement next year, the forward P/E is 15. Fisher Asset Management, managed by billionaire Ken Fisher, had owned 6.3 million shares at the end of Q1 (research more stocks Fisher likes).
Disclosure: I own no shares of any stocks mentioned in this article.