Tracking Jeffrey Ubben's ValueAct Portfolio - Q3 2016 Update

|
Includes: ADS, AFI, ALSN, AWI, BHI, CBG, FOX, MS, MSCI, MSFT, RYCEY, SMGZY, STX, TRN, VRX, WLTW
by: John Vincent

Summary

Jeffrey Ubben's 13F portfolio increased from $11.02B to $11.49B this quarter.

ValueAct increased Seagate Technology, Trinity Industries, and Alliance Data Systems, while reducing Bakes Hughes and Microsoft.

The top three positions are Microsoft Corporation, Baker Hughes, and Morgan Stanley, and they add up to ~44% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Jeffrey Ubben's US stock portfolio on a quarterly basis. It is based on Ubben's regulatory 13F Form filed on 11/15/2016. Please visit our Tracking Jeffrey Ubben's ValueAct Portfolio article for an idea on his investment philosophy and our previous update for the fund's moves during Q2 2016.

This quarter, Ubben's US long portfolio increased ~4% from $11.02B to $11.49B. The number of holdings decreased from 14 to 13. The top three holdings are at ~44%, while the top five are at ~64% of the US long assets. The largest position is Microsoft Corporation (NASDAQ:MSFT), which was first purchased in Q1 2013 and now accounts for 19.36% of the US long portfolio.

To know more about activist investing, check out "Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations."

Note: ValueAct is also known to have a ~10% activist stake in Rolls Royce (OTCPK:RYCEY). The position was established mid-last year. The stake was increased substantially in November 2015, while simultaneously dropping a position in Smiths Group plc (OTCPK:SMGZY).

Stake Disposals:

MSCI Inc. (NYSE:MSCI): MSCI was a very small 0.91% of the US long portfolio position. The majority of the original position was purchased in November 2012 at a cost basis of around $26. In Q4 2015, the stake was sold down by about one-third at ~$68.50 per share. The following quarter also saw another ~36% reduction in the low-$70s price range. There was another two-thirds reduction last quarter at prices between $71.50 and $80, and the disposal this quarter was at prices between $77 and $90. The stock currently trades at $80. Thus, ValueAct harvested gains.

New Stakes:

None.

Stake Decreases:

Baker Hughes Inc. (NYSE:BHI): BHI is currently the second-largest position at 13.13% of the portfolio. It was first purchased in Q4 2014 at prices between $50 and $66 and was increased by 55% the following quarter at prices between $53.50 and $65. Last quarter saw another two-thirds increase at prices between $39 and $49.50. There was an about-turn this quarter: ~23% selling at ~$50 per share. The stock currently trades at $61.57.

Microsoft Corporation: MSFT is Ubben's largest position at 19.36% of the US long portfolio. The vast majority of the stake was built in Q1 and Q2 2013 at prices between $26.50 and $36. The position was since increased by ~28% through periodic buying. Q4 2015 saw an about-turn: ~25% reduction at ~$53.50 per share. There was another roughly one-third reduction this quarter at ~$56 per share. The stock currently trades at $61.12. ValueAct is harvesting huge gains.

Stake Increases:

Alliance Data Systems (NYSE:ADS): ADS was a very small ~1% of the portfolio stake purchased in Q1 2016 at prices between $177 and $277. The position was built up to a ~6% portfolio stake last quarter at prices between $186 and $226. There was another ~50% increase this quarter at ~$200 per share. The stock is now at $233. ValueAct's ownership stake is ~8.5%.

CBRE Group (NYSE:CBG): CBG is a large 8.43% of the US long portfolio stake. The vast majority of the ~34.6M share position (~10.3% of the business) was established in 2011 and 2012 in the mid-to high-teens price range. The stock currently trades at $29.70. This quarter saw a very minor ~5% increase.

Note: Regulatory filings earlier this month show ValueAct owning 40.67M shares (12.1% of business): ~6M shares purchased at ~$26 per share.

Twenty-First Century Fox Class B (NASDAQ:FOX): FOX is a large (top-five) 10.84% position. It was first purchased in Q2 2014 at prices between $31 and $35 and increased by a whopping 10x the following quarter at around the same price range. The stock currently trades below those ranges at $28.14. For investors attempting to follow ValueAct, FOX is a good option to consider for further research. This quarter saw a ~6% further increase at ~$25.50 per share.

Note: ValueAct controls ~6% of the business.

Morgan Stanley (NYSE:MS): MS is a (top-three) ~12% portfolio stake established last quarter at prices between $23.50 and $28 and increased by ~10% this quarter at prices between $25 and $32. The stock is now well above those ranges at $40.54.

Seagate Technology (NASDAQ:STX) and Trinity Industries (NYSE:TRN): These small stakes saw large increases this quarter. The 3.2% STX position saw a ~220% increase at prices between $23 and $38.50, and the stock currently trades at $38.96. The 2.61% TRN stake was roughly doubled at ~$23.50 per share, and the stock is now at $26.54.

Note: Regulatory filings earlier this month show Ubben's ownership stake in TRN at 9.8% of the business: 2.5M shares added at ~$22.

Kept Steady:

Allison Transmission Holding (NYSE:ALSN): The original stake in ALSN is from Q2 and Q3 2013 at an average cost basis of around $23. There have been minor adjustments since. The stock currently trades at $32.14, and the stake is at ~5% of the portfolio.

Note: Regulatory filings since the quarter ended show ValueAct holding 10.53M shares (6.4% of business): 8.6M shares sold at ~$30 per share. ValueAct harvested long-term gains.

Armstrong Flooring Inc. (NYSE:AFI): The very small 0.76% AFI stake came about as a result of the spin-off from Armstrong World Industries that closed in April. The terms called for shareholders to receive 2 shares of AFI for each share of Armstrong World Industries held. ValueAct had 9.2M shares, for which they received 4.6M shares (16.6% of the business)

Armstrong World Industries (NYSE:AWI): AWI is a 9.2M share stake (16.6% of the business). It was established in Q2 2014 and increased by ~3x in Q3 2014 at around the mid-$40s price range. The stock currently trades at $41.30. As a percentage of the portfolio, the position is at 3.31%. For investors attempting to follow Ubben, AWI is a good option to consider for further research.

Note: AWI is an activist stake, and ValueAct was involved in the spin-off. They have had a presence in the board since December 2014.

Valeant Pharmaceuticals (NYSE:VRX): The VRX position is now relatively small at 3.20% of the US long portfolio. ValueAct controls 4.4% of the business. It is a very long-term stake. Q3 2014 saw a ~23% reduction at prices between $197 and $242. The stock is now at $17.83.

Note: ValueAct first purchased VRX stock in 2006. Their team was involved in the transformation of Valeant from an early-stage pharmaceuticals business to the behemoth it is today.

Willis Towers Watson (NASDAQ:WLTW) (previously Willis Group): WLTW is a very long-term holding first purchased in 2009 and substantially increased in 2010. Q4 2012 and Q1 2013 saw a stake doubling at prices between $78 and $96, and since then, the position has stayed relatively steady. ValueAct controls ~10% of the business. The stock is now at $125.

Note: Willis Group Holdings offered to merge with Towers Watson in June 2015, and the transaction closed in January. The terms involved TW shareholders receiving 2.649 shares of WSH for each share held, along with a $10 one-time cash dividend. Immediately following the merger, Willis did a reverse-stock split (2.649:1) and rename transaction to form the new entity, Willis Towers Watson plc. The prices quoted above are adjusted for the split.

The spreadsheet below highlights changes to Ubben's US stock holdings in Q3 2016:

Click to enlarge

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.