Barry Rosenstein founded Jana Partners in 2001, and now has some $3.5 billion in assets under management. The hedge fund focuses on value-oriented and event-driven strategies. A couple of Jana’s latest activist campaigns include its fight with Ashland Inc. (NYSE:ASH) and Agrium Inc. (USA) (NYSE:AGU). Outlined below are a few of Jana’s notable sell-offs and additions during the first quarter, per the fund’s quarterly filing with the SEC (check out Jana’s latest moves).
A few of Jana’s latest moves include notable sell-offs. The hedge fund dumped its entire stake of American International Group Inc (NYSE:AIG), Tripadvisor Inc (NASDAQ:TRIP) and Netflix, Inc. (NASDAQ:NFLX).
Insurance out of favor
AIG will also be limited over the interim related to difficulties with returning capital to shareholders given its designation as a Systematically Important Financial Institution. The overall hedge fund sentiment for American International Group Inc (NYSE:AIG) was negative during the first quarter. At the end of the first quarter, there were a total of 146 hedge funds long the stock, a 5% decline from the end of 2012 (see which stocks still love AIG).
Not far to travel
Tripadvisor Inc (NASDAQ:TRIP) is expected to see revenue up 22% in 2013 and then another 19% in 2014. A few key initiatives expected to drive this growth are international expansion and mobile platform development. The travel review site saw a 54% increase in the number of unique monthly users during 1Q 2013 on a year-over-year basis.
However, despite all the good news, Tripadvisor Inc (NASDAQ:TRIP)’s valuation might be too rich, not to mention the fact that 27% of the company’s revenue came from Expedia Inc (NASDAQ:EXPE), which spun off TripAdvisor in 2011.
The competition in the space remains robust from both larger Internet companies and smaller start-ups. What’s more is that Tripadvisor Inc (NASDAQ:TRIP) appears to be a bit expensive, trading at 9.6 times sales, compared to Priceline.com Inc (NASDAQ:PCLN)‘s 7.7 times, Expedia Inc (NASDAQ:EXPE) 1.9 times and Orbitz Worldwide, Inc. (NYSE:OWW) 1.0 times.
Netflix, Inc. (NASDAQ:NFLX) has continued overhang from valuation concerns. The streaming-content company has an EV/EBITDA of 100, whereas the other “expensive” stock Amazon.com, Inc. (NASDAQ:AMZN) is 43.5. What’s more is that Netflix trades at a P/E of 550 times, which is at the upper end of its five-year P/E range of 15 times to 570 times.
The stock saw a nice uptick, moving up 25% over the last three months, on better-than-expected 1Q results. However, the second-quarter outlook is tempered; yet, investors overlooked this and took the 1Q results as a sign that worldwide streaming-subscriber growth would continue upward.
One of the big headwinds for Netflix, Inc. (NASDAQ:NFLX) is the competition. The barriers to entry are low and consumers can maintain multiple subscriptions, with switching costs being non-existent. Let’s run through some of the notable competitors:
Multi-channel video program distributions with TV everywhere applications: HBO GO, Showtime Anytime
Video-on-demand content and cable providers: Time Warner Cable Inc (NYSE:TWC), Comcast Corporation (NASDAQ:CMCSA), DIRECTV (NASDAQ:DTV), DISH Network Corp. (NASDAQ:DISH), AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ).
DVD rental and kiosks: Blockbuster and Redbox
Video retailers: Best Buy Co., Inc. (NYSE:BBY), Wal-Mart Stores, Inc. (NYSE:WMT) and Amazon
Although Jana was dumping Netflix, Inc. (NASDAQ:NFLX), billionaire and Tiger cub, John Griffin of Blue Ridge Capital added Netflix to his portfolio during 1Q (check out Griffin’s other moves).
New additions
Meanwhile, Jana did add BMC Software, Inc. (NASDAQ:BMC) and The Boeing Company (NYSE:BA) to its portfolio during the first quarter. BMC is now its eighth-largest holding, and Boeing is at 11th. BMC appears to be a merger-arb play for Jana. BMC announced in early May that it will be acquired by a group of private equity firms for $46.25 per share.
Boeing has been gaining momentum on the back of solid 1Q EPS results. The company posted EPS of $1.73, compared to $1.40 for 1Q 2012. Its backlog also grew by $20 billion net orders during 1Q to a total $392 billion backlog.
Boeing and Airbus own the large commercial-aircraft market. From 2009 to 2012, based on total unit orders of 150-plus seat jetliners, Boeing owned 49% and Airbus 51% of the large commercial-aircraft market.
Meanwhile, The Boeing Company (NYSE:BA)’s stock has showed little overhang from the grounding of its 787 Dreamliner, as the stock is up 35% over the past six months. The stock could see further upside on the back of a rebounding economy; a strengthening economy will lead to greater travel, which will in turn lead to higher commercial aircraft demand.
Bottom line
Jana sold off some key companies, while snatching up the likes of BMC Software, Inc. (NASDAQ:BMC) and Boeing. I think the American International Group Inc (NYSE:AIG) sell-off was warranted and believe the insurer could be getting overvalued at current levels. Meanwhile, Jana’s other sell-offs, Tripadvisor Inc (NASDAQ:TRIP) and Netflix, Inc. (NASDAQ:NFLX), are well timed (both are up more than 25% over the last three months), as I see little upside for these stocks.
BMC is a merger-arb play and will provide little return for investors unless they have sizable capital to deploy. However, Boeing should perform nicely on the back of a strengthening economy.
The article Jana Partners Jams Things Up originally appeared on Fool.com and is written by Marshall Hargrave.
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