By Eric Winter
Maintaining a focus on special situations and distressed investing, hedge fund founders David Cohen and Harold Levy joint-manage Iridian Asset Management's $6bn in capital. They recently released their latest 13F filing for Q4 2012; the document outlines the changes their fund holdings have gone through (refer to their Q3 2012 filing as a starting point here). The filing also shows new positions that are initiated, which can be good indications of up-and-coming stocks that are fit enough to receive allocations in the millions of dollars. We have determined the five largest new investments here:
ADT Corp. (ADT) stands as Iridian's newest large position, taking up 2.8% of the fund's dollars. The home/business security and monitoring company is best-in-breed, comprising a quarter of the whole industry's market share. The stock was generous to shareholders this past year, as it gained 25% and will most likely keep going due to their recent declaration of a $900mm buyback in January. The announcement came on the heels of a positive earnings report the day before, in which revenue and earnings saw advanced growth over the corresponding quarter a year prior.
Vehicle rental giant Avis Budget Group, Inc. (CAR) finds a spot on this list as a nearly $90mm investment for the management duo. The stock gave a standout performance in the past twelve months, rising over 50%, and analysts are giving the price more room to grow, as it is double-digit numbers away from their mean price targets a year in the future. The beginning of 2013 brought an announcement that CAR would buy car-sharing company Zipcar, Inc., poising the stock to be more competitive against Hertz, which already has a similar operation. They are due to report Q4 2012 earnings on the thirteenth of this month, with some estimates dipping into the negative, so be wary. Jeffrey Vinik of Vinik Asset Management recently dropped his position by more than half, according to his last 13F (see Vinik's holdings here).
Search engine giant Yahoo Inc. (YHOO) makes an appearance as a new investment in Iridian's filing, further widening the portfolio's technology allocations. The stock took a particularly big hit in late 2008 and has not been able to return to its former glory, largely in part due to a suffering user base and poor management direction. They recently reported 4Q 2012 earnings on January 29th, and although they were better than analysts' expectations, they issued lackluster guidance with the report. The Street would like to see better investments made by the tech company, and the overwhelming hold ratings indicate that. Chase Coleman of Tiger Global Management sits atop a $400mm investment in the stock (find which other tech stocks comprise his top 10 here).
Beat-up hardware and software manufacturer Hewlett-Packard Company (HPQ) managed to find a 1.3% seat in Iridian's fund, after coming off a very negative 2012. Despite consistent earnings beats throughout last year, many analysts are hesitant to rank HPQ anything above a hold, with only JPMorgan in the recent past issuing the company an upgrade (from underweight to neutral at that). Even despite a drastic drop in share price this past year, analysts feel the company is still overvalued. Averaging out their one year price targets gives the stock a future value of $14.15, a ways away from current levels of $16.70. A number of investors are taking the contrarian view and jumping ship, including Lee Hobson of Highside Capital Management, who dropped his holdings almost in half.
Check Point Software Technologies, Inc. (CHKP) finishes out the bottom of our list. The company operates in the IT security industry, offering a wide range of network and data security options to clients. They are another leader in their field and are looked upon positively by Wall Street, which sees upside potential from current trading ranges. They recently beat 2012 fourth quarter estimates, and year-over-year calculations show signs of growth. Billionaire Jim Simons' hedge fund has a significant stake in the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.