By Matt Doiron
We track quarterly 13F filings from hedge funds and other notable investors, and use this information in a couple of different ways. First, the information in 13F filings (which disclose many of a fund's long equity positions as of the end of the previous quarter) can be useful in formulating 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. A more common use of these filings, of course, is as a source of free investment ideas from top fund managers. We have gone through the most recent filing for value and activist investor Barry Rosenstein's JANA Partners (see the full filing on the SEC's website) and here are our thoughts in its largest holdings by market value were at the end of March (or compare its picks to those in previous filings):
The fund reported owning 1.1 million shares of Agrium (AGU) in the 13F. JANA was recently defeated in its attempt to pressure the seller of agricultural chemicals and other materials into splitting into wholesale and retail companies. Currently Agrium trades at 10 times trailing earnings, with little growth expected over the next couple of years. Agriculture related stocks are generally priced low in this market, and we think that the space is actually an interesting target for value investors, so it might be worthwhile to compare Agrium to its peers.
JANA initiated a position of 3.6 million shares in Ashland (ASH), a $7 billion market cap specialty chemicals company. Rosenstein has publicly called for the company to return more cash to shareholders, and in fact the dividend yield was recently increased (though only to 1.5%) and the company's repurchasing program was expanded as well. Ashland's earnings have been down recently- in its most recent quarter, they were 40% lower than in the same period in the previous fiscal year- and the forward P/E of 11 is not that low for the chemicals industry.
Rosenstein and his team trimmed their stake in oil and gas exploration and production company QEP Resources (QEP) but at 7.5 million shares it was still one of their largest holdings. The company is focused on the onshore U.S, in areas such as Wyoming's Pindale and the Williston Basin in North Dakota. QEP's revenues have been up, primarily on the strength of higher oil sales. While operating income was positive in Q1, the combination of interest expenses and a loss on derivative contracts caused the business to be unprofitable for the quarter.
VeriSign (VRSN) was another of JANA's top stock picks with the filing disclosing ownership of 4.9 million shares (up from 3.1 million three months earlier). The company is responsible for Internet registry services; as such, its pricing is tightly regulated by authorities and in fact last fall Verisign's ability to increase its prices over the next several years was limited by the Department of Commerce. This caused a steep drop in the stock price, but it has actually recently recovered to roughly its 52 week high. As of this writing Verisign is valued at 24 times its trailing earnings.
The 13F showed JANA with 6.4 million shares of Copart (CPRT) in its portfolio as of the beginning of April. At a market capitalization of $4.7 billion, the online vehicle auctions company looks a bit pricy at a trailing P/E of 26. The sell-side is looking for significant earnings growth going forward, but still their forecasts for the fiscal year ending in July 2014 result in a forward earnings multiple of 21. In addition, while Copart's revenue has been up going by recent quarterly reports, earnings numbers have not been as strong. We would avoid the stock as a result.