When Billionaire Activist Barry Rosenstein Buys These Stocks, You Sell Them

Billionaire Barry Rosenstein is the founder and portfolio manager of activist hedge fund JANA Partners. He founded the event-driven fund in 2001 and follows an activist approach similar to those employed by Carl Icahn and other famous activists. Rosenstein buys large stakes in companies and then pushes them to restructure, leading to value accretion for investors. While JANA Partners’ overall track record since inception has been quite good, his recent performance has been poor. The fund reported a loss in 2015 and has not fared well in 2016.

Rosenstein also appears to have deficiencies in his investing. We backtested JANA’s top-5 large-cap picks between 2003 and 2012 and found that those stocks gave a value-weighted, average monthly return of 0.35%, compared to the S&P 500’s 0.65% returns over the same time. Thus, JANA Partners’ picks underperformed by an average of 0.3 percentage points per month during that ten-year period. With that in mind, investors may look to avoid the top large-cap picks of JANA Partners given its track record, and we’ll discuss some of those picks in this article.

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Conagra Brands Inc (NYSE:CAG) is the biggest stock holding of JANA Partners as of September 30, with the fund holding 17.8 million shares worth $838 million. The food company accounted for 14.74% of the value of JANA’s 13F portfolio. The performance of the company’s shares has been poor in 2016, with a loss of 9%. Shares are also trading just 20% above their 52-week low. Conagra Brands Inc (NYSE:CAG) announced a spin-off of its Lamb Weston business in October and increased its stock repurchase program to $1.25 billion.

At the end of the third quarter, 50 funds in our system were long Conagra Brands Inc (NYSE:CAG), holding shares worth $2.76 billion and constituting 12% of the company’s float. Dan Loeb‘s Third Point and John Overdeck and David Siegel’s Two Sigma Investments were the biggest buyers of this stock during the third quarter. D E Shaw and Ratan Capital Management also bought a large chunk of Conagra Brands Inc (NYSE:CAG) shares during the September quarter.

JANA Partners substantially increased its holding in Marathon Petroleum Corp (NYSE:MPC) during the third quarter. It bought 1.6 million shares of the energy company to take its total holding to 4.3 million shares worth $177 million at the end of the September quarter. The stock has been a successful investment for the fund in the past, when JANA Partners successfully campaigned for the company to spin-off its midstream assets. The fundamentals of Marathon Petroleum Corp (NYSE:MPC) have improved alongside rising crude oil prices. The stock price has also increased by 16% over the last 3 months, though its remain flat over the last year. Activist fund Elliott Management recently told management that the company is undervalued and suggested breaking up the firm.

D E Shaw and Cliff Asness‘ AQR Capital Management were bearish on Marathon Petroleum in the third quarter, as they sold off large positions during the period. OZ Management was the third-biggest seller of the stock, liquidating its entire position. According to our database, the number of funds owning Marathon Petroleum Corp (NYSE:MPC) increased by 10 to 53 in the third quarter, and the value of their holdings also went up by almost 4% to $2.79 billion quarter-over-quarter.

We’ll check out three more of the fund’s large-cap stock picks on the next page.

Barry Rosenstein more than doubled his position in technology giant Hewlett Packard Enterprise Co (NYSE:HPE) during the third quarter, taking his total stake to 6.8 million shares worth $155 million. The company has given an excellent return of 68% to its investors over the last year and currently trades at the top of its 52-week price range. That may have prompted D. E. Shaw, Arrowstreet Capital, and Israel Englander‘s Millennium Management to sell the stock during the September quarter. Hewlett Packard Enterprise Co (NYSE:HPE) reported a 7% yearly drop in revenue for its fiscal fourth quarter. The company that makes most of its money from its legacy server business and faces threats from new cloud computing companies. $3.78 billion worth of HPE shares were held by 71 funds in our system at the end of September, versus shares valued at $2.72 billion held by 63 funds at the end of the June quarter.

Priceline Group Inc (NASDAQ:PCLN) was a new addition to JANA Partners’ portfolio during the third quarter, with the fund buying 105,409 shares of the stock worth $155 million. The performance of Priceline Group Inc (NASDAQ:PCLN) has been solid, with the stock gaining 16% over the last year, but the stock seems pricey with a trailing P/E of 38x. The company recently appointed Glenn Fogel as CEO beginning in 2017. While Priceline Group Inc (NASDAQ:PCLN) has performed extremely well over the last decade, it faces increasing competition and disruption from the likes of AirBnB. Smart money is bullish nonetheless, with the number of smart money managers having Priceline Group Inc (NASDAQ:PCLN) in their portfolios increasing to 98 as of September 30, from 85 quarter-over-quarter.

Alphabet Inc (NASDAQ:GOOG) is the world’s second most-valuable company and forms 2.67% of JANA Partners’ 13F portfolio as of the end of the third quarter. Barry Rosenstein reduced his stake in the company substantially, selling 317,658 class C shares, reducing his fund’s overall position to 196,023 class C shares worth $152 million. The stock has underperformed the overall markets, gaining just 4.9% year-to-date. It is expected that large technology companies may not perform well under the new Trump administration, as he enacts more trade protectionist policies. This may bring Alphabet Inc (NASDAQ:GOOG) under increased regulatory pressure from foreign governments in China and Europe. The number of hedge funds in our database long Alphabet Inc (NASDAQ:GOOG)’s class C shares rose to 134 during the third quarter, from 126 at the end of June. 137 funds were also long the company’s class A shares at the end of September, up from 135 three months earlier.

Disclosure: None