Value Investor Barry Rosenstein’s Cheap Stock Picks Include Aetna Inc (AET)

JANA Partners, managed by Barry Rosenstein, is a value and activist hedge fund, and Aetna Inc (NYSE:AET) is one of its holdings. It is one of the hundreds of hedge funds which Insider Monkey tracks in our database of quarterly 13F filings, a database we use to develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). While we don’t recommend blindly following hedge funds’ picks, we can screen them according to a number of criteria (including low earnings multiples) and take a quick look at these free investment ideas. Read on for our thoughts on JANA’s three largest holdings from its most recent 13F with both trailing and forward P/Es of 14 or lower (or see the full list of the fund’s stock picks).

Rosenstein and his team maintained a position worth more than $1 billion in Agrium Inc. (USA) (NYSE:AGU), a wholesaler and retailer of fertilizer and agricultural products, though the fund may have reduced its stake since the filing following its failed attempt to break up the company. Agrium dropped 5% on July 30th on news that another fertilizer company is going to increase its production, which should lead to a fall in market prices and therefore tougher conditions for Agrium’s business.

This news comes as Agrium has been struggling somewhat on its own: in the first quarter of 2013, revenue and net income fell 8-10% versus a year earlier. Markets seem to have priced in a modest decline in earnings, with both the trailing and forward earnings multiples coming in at 9, but investors should still be concerned about the implications of this recent development for the company. Over the longer term, however, some analysts believe that agriculture could be a growth industry due to a growing world population and more demand for meat (which is more agriculturally intensive to produce) as the developing world becomes richer.

JANA disclosed ownership of 3.8 million shares of health insurer Aetna Inc (NYSE:AET) at the end of March. At a market capitalization of $21 billion, the stock trades at 13 times trailing earnings; health insurers are generally a bit cheap in the current market as investors worry about future regulation of the industry if health care costs continue to rise. In the first quarter of the year Aetna Inc (NYSE:AET)’s earnings fell slightly despite 7% revenue growth compared to a year ago. Greenlight Capital, managed by David Einhorn, reported a position of 6.5 million shares of Aetna Inc (NYSE:AET) in its own 13F (find Einhorn’s favorite stocks).