Billionaire Jeff Ubben’s Top Five Long-Term Picks

Jeff Ubben of ValueAct Capital is a pretty successful investor. Not only has he built up his fund to have an equity portfolio of $17.20 billion since founding ValueAct in 2000, but he also has successfully played the role of the ‘nice activist investor’, in which he and his fund work with management behind the scenes to unlock a company’s intrinsic value rather than go the typical activist approach of writing angry missives and launching full, frontal, public battles. Ubben usually employs a long-term approach in his investment process and given his success, let’s take a look at some of his conviction picks that ValueAct held in its equity portfolio for at least three years, which include Willis Group Holdings PLC (NYSE:WSH), CBRE Group Inc (NYSE:CBG), Adobe Systems Incorporated (NASDAQ:ADBE), Halliburton Company (NYSE:HAL), and Valeant Pharmaceuticals Intl Inc (NYSE:VRX).

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

#5 Willis Group Holdings PLC (NYSE:WSH)

Shares held (as of September 30): 18.42 million
Total Value (as of September 30): $754.83 million
Percent of Portfolio (as of September 30): 4.39%

On December 11, Willis Group Holdings PLC (NYSE:WSH) and Towers Watson & Co (NASDAQ:TW) officially merged to form a global advisory and brokering powerhouse. Under terms of the deal, the combined company will be called Willis Towers Watson, and Willis shareholders will receive one share of the new company for each 2.649 Willis shares they own. Ubben likes the merger, which he thinks is highly accretive and will likely double the earnings by 2018. Among the other savvy investors in Willis is Jim Simons’ Renaissance Technologies with 990,905 shares as of the end of the third quarter.

#4 CBRE Group Inc (NYSE:CBG)

Shares held (as of September 30): 31.33 million
Total Value (as of September 30): $1 billion
Percent of Portfolio (as of September 30): 5.83%

Ubben likes CBRE Group Inc (NYSE:CBG) because it has large scale and substantial cross-selling opportunities. Much of CBRE Group’s revenue is repeatable and recurring. As a bonus, the company is not hard to understand and shares trade at a reasonable 14.64 times forward earnings estimates. Hedge fund sentiment towards the company has also been stable, with the number of funds from our database long the stock unchanged quarter-over-quarter at 32. Richard Blum‘s Blum Capital Partners owned 3.93 million shares of CBRE at the end of September.

#3 Adobe Systems Incorporated (NASDAQ:ADBE)

Shares held (as of September 30): 14.01 million
Total Value (as of September 30): $1.15 billion
Percent of Portfolio (as of September 30): 6.70%

Although he trimmed his stake in Adobe Systems Incorporated (NASDAQ:ADBE) since last year, Ubben’s ValueAct Capital still owns around 14 million shares of the company, the stake amassing 6.7% of the fund’s equity portfolio. Analysts see good things for the company ahead, which has an estimated next five year EPS growth rate of 32.77%. Not surprisingly, no analyst has a ‘Sell’ rating on the stock, and 19 out of the 26 analysts covering Adobe have ‘Buy’ ratings. Stephen Mandel’s Lone Pine Capital is long 6.21 million shares of Adobe, according to its latest 13F filing.

#2 Halliburton Company (NYSE:HAL)

Shares held (as of September 30): 37.15 million
Total Value (as of September 30): $1.31 billion
Percent of Portfolio (as of September 30): 7.64%

Although Halliburton Company (NYSE:HAL) has committed to selling assets that bring in as much as $7.5 billion in annual revenues to make the merger with Baker Hughes Incorporated (NYSE:BHI) go through, the Department of Justice recently notified the two oil service companies that their concessions were not sufficient enough. The two companies have, in response, extended the deadline to close the deal to April 30, 2016. Although regulators haven’t approved the deal yet, Ubben is optimistic, as he thinks the companies will do ‘whatever is necessary’ to win approval. This likely means divesting more assets. If the merger goes through, the companies’ margins will rise and if Saudi Arabia cuts crude production, so will their EPS (in a major way).

#1 Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

Shares held (as of September 30): 14.99 million
Total Value (as of September 30): $2.67 billion
Percent of Portfolio (as of September 30): 15.55%

It seems Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is successfully recovering from its ugly sell-off. Shares of the embattled drug maker have broken above the $100 per share level on several bits of positive news, including a new distribution deal with Walgreens Boots Alliance Inc (NASDAQ:WBA) and optimistic 2016 guidance, with management expecting revenue between $12.5 billion and $12.7 billion and Non-GAAP EPS of $13.25 to $13.75 for next year. Perhaps more importantly,Valeant still counts many top investors among its shareholders, including Bill Ackman’s Pershing Square, which owns 9.9% of the company. As long as Ackman holds shares, many investors will remain confident in the stock.

Disclosure: none