This article discusses the top 7 stock picks of activist JANA Partners at the end of the second quarter. You can skip our detailed analysis of the fund, its history and recent performance if you are short on time and go directly to 3 Best Stocks to Buy According to JANA Partners.
Founded in 2001, JANA Partners is a hedge fund that manages approximately $2 billion in assets. The firm is based in New York City and is run by founder, managing partner, and co-portfolio manager Barry Rosenstein. JANA Partners focuses on investing in companies that are undergoing change or are in need of operational improvement. The firm is known for being an activist investor, meaning that it takes an active role in the management of the companies in which it invests.
Prior to founding JANA Partners, Mr. Rosenstein worked as an investment banker at multiple financial institutions. He received his MBA, with honors, from the University of Pennsylvania’s Wharton School of Business in 1984 and joined Merill Lynch’s mergers and acquisitions divisions in the same year. During the mid-80s, Mr. Rosenstein worked for well-known ‘corporate raider’ Asher B. Edelman’s Plaza Securities Corporation. Before founding JANA Partners with $35 million in capital, his last role was as a principal at Sagaponack Partners, a private equity firm.
JANA Partners’ investment philosophy has seen a radical shift over the years. What started as a value-oriented, event-driven fund has shifted its gears in the past few years and has turned into a full-blown activist hedge fund that also runs special purpose acquisition companies (SPACs). During the last decade, JANA closed down two of its stock-picking funds – Jana Partners and Jana Nirvana funds – and has concentrated on running its flagship Jana Strategic Investment (JSI) fund. Unlike most successful hedge funds, whose returns mostly come from stock-picking, market timing or quant strategies, JANA’s returns over the past few years can primarily be attributed to the work it did in restructuring its target companies.
The Jana Strategic Investment (JSI) fund has posted spectacular returns in recent years. While it made its investors richer by 30% after fees last year, it was up 52% in 2019 and has returned an average of 30% annually after fees over the previous three years. Not only that, but since its inception, Jana Strategic Investment (JSI) has posted a spectacular average annual return of 18%, comfortably beating the performance of the S&P500 during that time.
JANA Partners’ Portfolio
According to JANA Partners’ recently submitted regulatory filing, the aggregate value of its 13F holdings at the end of June was $1.15 billion, a substantial drop from over $1.5 billion at the end of March. In addition, during the second quarter, the fund reduced its holding in one stock, made additional purchases in four stocks and sold its entire stake in one company. Apart from individual stocks, JANA Partners also had substantial holdings in the SPDR S&P 500 ETF Trust (NYSE:SPY), which accounted for almost 14% of its 13F portfolio value at the end of Q2. Though the fund sold its top holding from Q1, Zendesk, Inc. (NYSE:ZEN), other companies it has invested in like Mercury Systems, Inc. (NASDAQ:MRCY), TreeHouse Foods, Inc. (NYSE:THS), and Laboratory Corp. of America Holdings (NYSE:LH) continued to remain among its top stocks picks at the end of Q2.
Our Methodology
Research done by Insider Monkey shows that over the long term, the consensus stock picks of top-performing hedge funds beat the broader market returns by a wide margin, which is why we actively track the moves made by the 895 hedge funds in our database. We selected the top 7 stock picks for this article based on the most recent 13F filing submitted by JANA Partners with the SEC for the quarter ending June 30.
7 Best Stocks to Buy According to Billionaire Barry Rosenstein’s JANA Partners
7. BlackSky Technology Inc. (NYSE:BKSY)
JANA Partners’ Stake Value: $6,568,000
Percentage of JANA Partners’ 13F Portfolio: 0.56%
Number of Hedge Fund Holders: 10
Founded in 2013, BlackSky Technology Inc. (NYSE:BKSY) is a Herndon, Virginia-based company that specializes in providing real-time geospatial intelligence and global monitoring services. It got listed on the New York Stock Exchange in 2021 through a merger with Osprey Technology Acquisition Corp; a SPAC floated by JANA Partners in 2019. Since getting listed last year in February, BlackSky Technology Inc.’s (NYSE:BKSY) stock has fallen close to 80% and currently trades near the $2 mark. As a result, the company’s market capitalization has also decreased from slightly over $1 billion to $251 million.
On August 25, BlackSky Technology Inc. (NYSE:BKSY) announced that it had received a call order worth $1.7 million from the National Aeronautics and Space Administration (NASA) to “evaluate accessibility, accuracy, quality and utility of the Company’s imaging data services for the Commercial Smallsat Data Acquisition (CSDA) Program.”
6. Conagra Brands, Inc. (NYSE:CAG)
JANA Partners’ Stake Value: $34,099,000
Percentage of JANA Partners’ 13F Portfolio: 2.94%
Number of Hedge Fund Holders: 30
Conagra Brands, Inc. (NYSE:CAG) is one of the largest packaged food companies in North America, with a strong portfolio of well-known brands, including Healthy Choice, Marie Callender’s, Reddi-wip, and more. It was JANA Partners’ second favourite stock at the end of March but got relegated to the sixth spot after the fund substantially reduced its holdings in the company by 88% during Q2. Other hedge funds covered by Insider Monkey that cut their stake in Conagra Brands, Inc. (NYSE:CAG) during that period included billionaire Cliff Asness’ AQR Capital Management, billionaire Mario Gabelli’s GAMCO Investors, and Joe Huber’s Huber Capital Management.
Conagra Brands, Inc. (NYSE:CAG) recently upped its quarterly dividend by 5.6% to $0.33 per share, which based on the stock’s last closing price, translates into a forward annual dividend yield of close to 4%. On August 15, analysts at Morgan Stanley reiterated their ‘Equal Weight’ rating on Conagra Brands, Inc.’s (NYSE:CAG) stock but reduced their price target to $34 from $36, which is very close to the levels the stock is currently trading at.
5. Encompass Health Corporation (NYSE:EHC)
JANA Partners’ Stake Value: $157,661,000
Percentage of JANA Partners’ 13F Portfolio: 13.63%
Number of Hedge Fund Holders: 34
JANA Partners disclosed a stake in Encompass Health Corporation (NYSE:EHC) for the first time during the third quarter of 2020. Encompass Health Corporation (NYSE:EHC) is a Birmingham, Atlanta-based company that operates inpatient rehabilitation centres in the US and Puerto Rico, which includes 149 hospitals.
JANA Partners wrote a letter to Encompass Health Corporation’s (NYSE:EHC) management in November last year, urging them to pursue a possible merger with interested third parties for its home health and hospice business instead of spinning it off as an independent publicly traded company. However, the management didn’t heed that advice and went ahead with its plans. As a result, Encompass Health Corporation’s (NYSE:EHC) home health and hospice business was spun-off in July this year and started trading on the New York Stock Exchange under the ticker ‘EHAB’ as Enhabit, Inc. (NYSE:EHAB).
4. New Relic Inc (NYSE:NEWR)
JANA Partners’ Stake Value: $176,632,000
Percentage of JANA Partners’ 13F Portfolio: 15.27%
Number of Hedge Fund Holders: 41
JANA Partners boosted its stake in New Relic Inc (NYSE:NEWR) by more than three folds during Q2 to over 3.5 million shares. In addition, the popularity of New Relic Inc (NYSE:NEWR) among smart money investors grew substantially during Q2 as the number of funds tracked by us that disclosed a stake in the software-as-a-service (SaaS) provider rose to 41 at the end of June from 30 at the end of Q1.
In June, New Relic Inc (NYSE:NEWR) announced that it had accepted the resignation of ex-board members Adam Messinger, Dan Scholnick and Jim Tolonen from the company’s board and had selected three new directors to replace them. Apart from Pali Bhat, the current Chief Product Officer at Reddit, the other two new directors – Kevin Galligan, partner and director of research of JANA Strategic Investments, and Susan D. Arthur, CEO of CareerBuilder – were nominated by JANA Partners. While joining the company’s board, Mr. Galligan said:
“We appreciate the productive conversations we have had with the New Relic Board. We are excited about the company’s future as it continues to leverage its unique and competitive product to deliver new account, data and user growth, and we look forward to working closely with the directors and management team to realize the company’s value potential on behalf of all New Relic shareholders.”
New Relic Inc’s (NYSE:NEWR) stock jumped more than 15% on a single day earlier in July when Reuters reported that the company is preparing to explore its sale after receiving interest for the same from private equity firms.
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Disclosure: None. Best Stocks to Buy According to JANA Partners is originally published on Insider Monkey.
