Billionaire Barry Rosenstein’s Top Moves Ahead of 2016

Following activist investors like Barry Rosenstein is one of the best ways to benefit from imitating the moves of smart money investors, mainly because activists usually don’t wait for a stock to appreciate over the long-term, but create catalysts that push towards unlocking shareholder value. This is why in the last years, activists have generated stronger returns than their passive peers. Specifically, billionaire Barry Rosenstein’s JANA Partners has posted an annualized return of 12% since its inception in 2001, even though it inched down in the first nine months of 2015, affected by the overall market decline. Since JANA Partners has recently revealed its equity portfolio for the end of the fourth quarter of 2015, we decided to take a look at some of the moves made by Mr. Rosenstein between October and December that caught our attention.

We follow JANA Partners as part of our small-cap strategy, which involves imitating the top small-cap stocks that hedge funds are collectively bullish on. This approach can help a retail investor generate substantial returns over the long-run, as proven in our backtests (read more details here). According to our own analysis, JANA’s 25 holdings in companies with a market cap above $1.0 billion posted a nearly flat return in 2015, which is not impressive, but is still in the upper half of our ranking that includes over 700 hedge funds.

Let’s start with JANA Partners’ largest holding in terms of value, which is represented by ConAgra Foods Inc (NYSE:CAG), in which JANA cut its position by 1.94 million shares, disclosing a holding of 28.63 million shares worth $1.21 billion. The move comes amid a 15% growth registered by the stock between October and December. Last year, JANA Partners reached an agreement with ConAgra which included the appointment of two directors to the company’s Board. In addition, the packaged foods company agreed to cut costs and sell its private brands. In November, TreeHouse Foods Inc. (NYSE:THS) agreed to buy ConAgra’s private brands in a $2.7 billion deal, which includes 32 plants in the U.S, Canada and Italy, with the Battle Creek plant having been acquired earlier this month. In its latest investor letter, JANA said that a sale of the private-label business will allow the company to obtain substantial cash proceeds and will “pave the way for further asset dispositions”. Billionaires Ken Griffin of Citadel Investment Group and Israel Englander of Millennium Management also own shares of ConAgra Foods, reporting ownership of 5.57 million shares and 5.18 million shares respectively in their latest 13F filings.

Next in line is Microsoft Corporation (NASDAQ:MSFT), in which JANA further increased its position, which was initiated during the third quarter. As the stock climbed by 25% in the second half of 2015, JANA amassed a $550.60 million position, which contained 9.92 million shares at the end of 2015, up from 7.70 million shares disclosed as of the end of September. Year-to-date the stock is down by nearly 8%, although the decline was offset by strong results for the last quarter, which were reported by Microsoft Corporation (NASDAQ:MSFT) at the end of January. The company delivered EPS of $0.78 on revenue of $25.69 billion in the second quarter of fiscal year 2016, which was above the consensus estimates of $0.71 in EPS and revenue of $25.26 billion. The results also showed that amid a declining PC market, Microsoft Corporation (NASDAQ:MSFT) is moving away from relying on Windows, with Office 365 revenue jumping by 70% on the year, while Azure revenue surged by 140%.

After it initiated a stake, JANA said in its third-quarter investor letter that Microsoft has “multiple avenues” to increase its earnings and free cash flow over the next couple of years. JANA also expects Microsoft to return more capital to shareholders and that its focus on cloud and the transformation of the company’s business model is also an advantage for both customers and shareholders. Billionaire Jeff Ubben’s ValueAct Capital unloaded 18.65 million shares of Microsoft during the fourth quarter, reporting a stake of 56.62 million shares in its 13F filing for the end of December.

On the next page, we are going to discuss JANA’s stake in QUALCOMM, Inc. (NASDAQ:QCOM), as well as two new positions the fund initiated during the fourth quarter.