Billionaire Jeffrey Ubben Trims 13F Portfolio, but Remains Bullish on These Stocks

In an interview with CNBC in March, ValueAct Capital‘s founder and chief investment officer, Jeffrey Ubben, revealed that his fund was reducing its stake in a number of companies and that it was finding it difficult to redeploy that cash due to a lack of value bargains on the market. The latest 13F filing submitted by ValueAct Capital with the Securities and Exchange Commission (SEC) reveals that the value of the fund’s US equity portfolio shrunk to $10.02 billion at the end of March from almost $14.45 billion a quarter earlier.  The filing also revealed that during the first quarter the fund reduced its holding in four stocks and sold its entire stake in three stocks, but during the same period initiated a stake in only two stocks and made additional purchases in only one stock. Considering that ValueAct made it clear that it’s not really gung ho about US equities going forward, in this post, we will discuss the fund’s top three equity holdings and the two stakes it initiated during the first quarter and attempt to analyze why it is bullish on them.

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New Stakes

Alliance Data Systems Corporation (NYSE:ADS)

 – Shares Owned by ValueAct Capital (as of March 31): 541,115

 – Value of Holding (as of March 31): $119.05 million

Alliance Data Systems Corporation (NYSE:ADS)’s stock took a severe beating at the beginning of 2016 after the company reported mixed fourth quarter numbers. Although one can’t be sure but given ValueAct’s preference for buying stocks when they have fallen considerably and are trading cheap, it is quite possible that the fund initiated its stake in Alliance Data Systems Corporation (NYSE:ADS) after this decline. Similar to the fourth quarter, the company again reported lower-than-expected revenue numbers for its fiscal 2016 first quarter, which is one of the reasons why its stock hasn’t been able to recover and currently trades down by over 25% year-to-date. Following its fourth quarter earnings release, on April 26, analysts at Susquehanna initiated coverage on Alliance Data Systems Corporation’s stock with a ‘Neutral’ rating and $228 price target, which represents a potential upside of 10.7% from the stock’s current trading price. During the first quarter, legendary trader Steve Cohen‘s Point72 Asset Management made an over eightfold increase to its stake in Alliance Data Systems Corporation to 269,100 shares.

Largest Holdings

#3 Baker Hughes Incorporated (NYSE:BHI)

 – Shares Owned by ValueAct Capital (as of March 31): 23.25 million

 – Value of Holding (as of March 31): $1.02 billion

ValueAct didn’t make any changes to its stake in Baker Hughes Incorporated (NYSE:BHI) during the first quarter, however, this stake was constantly in the news last month after the U.S. Justice Department filed a lawsuit against the fund seeking $17 million in damages. In its lawsuit, the Justice Department alleged ValueAct failed to properly disclose about $2.5 billion in purchases of Baker Hughes Incorporated (NYSE:BHI)’s and Halliburton Company (NYSE:HAL)’s shares in late 2014 after the latter announced that it would be acquiring the former in a $35 billion deal. According to the Justice Department, ValueAct had tried to influence the management of both the companies regarding this deal, and hence it was mandatory for the fund to disclose the share purchase at that time. Interestingly, ValueAct sold its entire remaining stake in Halliburton Company during the first quarter after cutting it by 56% during the last quarter of 2015. Citing the Justice Department’s suit against ValueAct  as an early indication, several analysts feel that the chances of regulators passing the Baker Hughes-Halliburton deal are low now. Dmitry Balyasny‘s Balyasny Asset Management upped its stake in Baker Hughes Incorporated by 55% during the first quarter.

#2 Twenty-First Century Fox Inc (NASDAQ:FOX)

 – Shares Owned by ValueAct Capital (as of March 31): 47.33 million

 – Value of Holding (as of March 31): $1.33 billion

Twenty-First Century Fox Inc (NASDAQ:FOX) jumped three spots to become the ValueAct’s second largest equity holding at the end of first quarter, even though the fund didn’t make any changes to its stake in the company during that time and shares of Twenty-First Century Fox Inc (NASDAQ:FOX) were up only marginally during the first quarter. Last month shares of the media giant saw an unprecedented rally of over 10%, but they have given up nearly all of those gains since the company came out with its first quarter numbers and are currently trading up by 4% year-to-date. For its fiscal 2016 first quarter, the company reported EPS of $0.47 on revenue of $7.23 billion, which was largely in-line with analysts’ expectation of EPS of $0.47 on revenue of $7.17 billion. On May 6, analysts at Stifel Nicolaus reiterated their ‘Buy’ rating on the stock while upping their price target on it to $32 from $29. Vinit Bodas‘ Deccan Value Advisors brought up its holding in the company by 36% to 5.53 million shares during the first quarter.

#1 Microsoft Corporation (NASDAQ:MSFT)

 – Shares Owned by ValueAct Capital (as of March 31): 56.62 million

 – Value of Holding (as of March 31): $3.13 billion

With ValueAct Capital keeping its stake in Microsoft Corporation (NASDAQ:MSFT) unchanged during the first quarter, the software giant continued to remain the fund’s largest equity holding at the end of that period. Shares of Microsoft Corporation (NASDAQ:MSFT) are currently trading down by over 10% year-to-date mainly owed to the drop they saw last month after the company had posted its first-quarter numbers. Though the drop of the stock have made a lot of investors nervous, they can take some respite in the fact that the stock hasn’t yet fallen convincingly below the $50 mark, which according to technical analysts is a strong support for it. In the last few days, the short interest in Microsoft’s stock has gone up significantly because many traders believe that the stock is trading at a very high multiple. However, most analysts  feel that the stock  is not overvalued at these levels, taking into account the growing cloud business of the company, and hence, they are cautioning investors from shorting it. On May 18, Microsoft Corporation announced that it is selling its feature phone business to FIH Mobile (a subsidiary of Foxconn) and HMD Global for $350 million. Billionaire Ken Fisher‘s Fisher Asset Management inched up its stake in the company by 1% to 18.22 million shares during the first quarter.

Disclosure: None