By Alex Oleinic
In the latest round of first-quarter 13F filings, David Cohen and Harold Levy's Iridian Asset Management has recently shared its equity portfolio, shedding light on how the hedge fund has been positioning itself over the past few months. Iridian typically focuses its efforts on finding value in depressed stocks going through significant managerial or structural changes. See the original 13F here.
Why this is important
Retail investors can benefit from watching hedge fund sentiment, as quantitative analyses have revealed that the best picks of the best money managers can beat the market by as much as 18 percentage points a year (discover the details of this strategy).
Hospitality company Wyndham Worldwide (WYN) has become the most valuable holding in the equity portfolio of Iridian Asset Management, the fund's 13F has revealed. David Cohen and Harold Levy's fund disclosed a $306.8 million position, which involves 4,757,452 shares of Wyndham Worldwide. In the previous 13F, the fund reported owning 5,142,892 shares, worth $273.7 million. Wyndham Worldwide's stock has a year-to-date return of 19.8% and the company could be found as a holding in the equity portfolio of 29 other hedge funds at the end of last year. For the first quarter of 2013, Wyndham Worldwide reported an adjusted diluted EPS of $0.71, up by 18% on the year. Over the entirety of 2013, the company expects an adjusted EPS of $3.60-3.70.
In Eastman Chemical (EMN), the fund disclosed a $290.9 million position, down from $299.7 million at the end of last year. Iridian owns 4,163,370 shares of the company, a decline from 4,399,170 shares posted at the end of December. For the first three months of 2013, Eastman Chemical posted earnings per diluted share of $1.57, up from $1.13 in the year-ago quarter. According to our database, Eastman Chemical was in the equity portfolio of more than 40 hedge funds in the previous round of 13F filings. The stock of Eastman Chemical has a year-to-date return of -0.7%, though it may be a value opportunity at a forward P/E of below 10.
Last three picks
The next on the list is Valeant Pharmaceuticals (VRX), where Iridian Asset Management owns 3,764,781 shares. The fund was bullish on the company, taking into account that in the previous 13F, the position involved 3,503,121 shares in total. The value of the holding also saw an increase to $282.4 million, compared to $209.4 million at the end of December. For the first three months of 2013, the total revenue of Valeant Pharmaceuticals advanced by a rate of 25% year-over-year to $1.068 billion, while cash EPS surged by an annualized rate of 43% to $1.30. Shares of the company have returned slightly above 22% since the start of the year, making this move of a momentum play than Iridian's other top holdings.
Iridian also disclosed a $278.8 million stake in W.R. Grace (GRA), with the previous value being $238.5 million. The fund now owns 3,597,203 shares of GRA stock, adding 50,150 shares in the process of last quarter. In addition to Iridian, more than 30 hedge funds were bullish on W.R. Grace at the end of 2012. The adjusted EPS of W.R. Grace fell to $0.81 per diluted share in the first quarter of 2013, from $0.88 a year ago, but the majority of Wall Street's seven analysts who cover this stock are bullish (two Overweight, four Buy, one hold).
Last but certainly not least is Omnicare (OCR), whereas Iridian Asset Management holds 6,780,519 shares. The value of the stake is $276.1 million, the latest 13F revealed. In the previous filing, the fund disclosed a stake of 7,050,159 shares, worth $254.5 million. The stock of Omnicare is trading at a forward P/E of 11x and has a year-to-date return of above 25%. According to our database, more than 20 hedge funds held positions in Omnicare heading into 2013-not a bad sentiment indeed.
After we looked deeper into the five most valuable holdings in the equity portfolio of Iridian Asset Management, it is important to mention that some of its other top picks include Motorola Solutions (MSI), The Valspar Corporation (VAL), and Tyco International (TYC). On the whole, according to its most recent 13F, Iridian lists 178 equity holdings, up from 176 disclosed one quarter earlier. This breadth makes watching its top positions even more important (continue preparing for 13F-filing season here).