Related tickers: Office Depot Inc (NYSE:ODP), Compuware Corporation (NASDAQ:CPWR)
If you belong to the school of thought that believes analyzing the fundamentals of a company is the best way to decide if it’s a worthy investment, you may want to take a look at Starboard Value’s top five picks. Founded by Jeffrey Smith in 2002, Starboard Value is a fundamental-oriented activist hedge fund that focuses on small cap stocks. It has grown the amount of assets it has under management to more than $1 billion. Most of these assets are from the technology and services sector, and it’s always important to track hedge fund sentiment for its market-beating potential.
The largest holding is Office Depot Inc (NYSE:ODP). Its 52-week trading range is between $1.61 and $6.10. It has been in meaningful talks with OfficeMax Inc (NYSE:OMX) to merge. The merger makes sense if the two have any chance of formidably competing with rival Staples, Inc. (NYSE:SPLS). The market caps of OfficeMax Inc (NYSE:OMX) and Office Depot Inc (NYSE:ODP) are each about $1 billion. That compares to Staples, Inc. (NYSE:SPLS)’ market cap of roughly $9 billion. The deal is pending the results of an investigation into the merger by the Federal Trade Commission. If the deal is eventually approved, it may have an estimated $1.2 billion.
Third on Starboard Value’s list is Progress Software Corporation (NASDAQ:PRGS). The company recently reported earnings for the first quarter. Although it beat Wall Street estimates, it missed on profit-per-share. Specifically, its revenues year over year were up 2%. They totaled about $89 million. Its earnings per share for the quarter were $.23. Analysts expected revenues of $86.3 million, and an EPS of $.24. The guidance it released was not very cheery either; it is $82.1 million.
Progress Software Corporation (NASDAQ:PRGS)’s CEO Phil Pead said during the earnings conference call that the company is in the midst of executing its strategic plan. A goal is to improve the company’s operating margin, and Pead said that progress is being made. To improve the rate of its revenue growth, the company is “releasing new and innovative functionality across our solution suites and significantly increasing our customer engagement,” Pead said. The company’s plan is crucial to it being able to compete in this space. One of its immediate peers is Tibco Software Inc. (NASDAQ:TIBX).
Compuware Corporation (NASDAQ:CPWR) is fourth on Starbuck’s hedge fund’s list of small cap stocks. Like the other companies mentioned in this story, Compuware Corporation (NASDAQ:CPWR) recently reported earnings. As pointed out by Zach’s Equity Research, Compuware Corporation (NASDAQ:CPWR) reported an impressive third quarter in January. Earnings per share surpassed its estimate by coming in at $.11, which was 9% higher than Zacks Consensus Estimate. The strong earnings report was the result of the company’s modest revenue growth and margin expansion, according to Zacks. The next time we’ll have to review how the company’s earnings are faring will come on May 21, when it reports its earnings for the fourth quarter. Since October when it was trading around $8.40, the stock has enjoyed a significant run up. It’s now trading within $1 of its 52-week high.
Wausau Paper Corp. (NYSE:WPP) rounds out the list of this top five. With sales of $822 million in 2012, it touts itself as a leading producer of environmentally conscious towel, tissue, soap and dispensing products. It has been going through a transformation, of sorts, thanks to the demands of Starboard. It used its 14.8% stake in the company as leverage in making it sell its paper segment, as well as reorganize its board. The company obliged, and recently nominated two members that Starboard recommended to its board. This will allow the company to concentrate on its tissue business, but it has an option to own up to 25 percent of the new company, noted the Reuters.
We track over 450 funds at Insider Monkey, and while this seems like a boatload, it represents close to the top 5% of all hedge funds active in the global financial markets. In terms of who’s “elite,” Starboard definitely in the conversation, and Wausau, Compuware Corporation (NASDAQ:CPWR), Progress Software, Integrated Device, and Office Depot Inc (NYSE:ODP) each represent strong investment plays in their own right. Check out the rest of Starboard’s stock picks here.