Billionaire Rosenstein Out of AutoNation, Talks ConAgra, Walgreens

Barry Rosenstein, the founder of JANA Partners LLC, recently has said that active management is cyclical in nature. The $7 billion hedge fund run by him reported a 5.4% last year, which was its first since 2011. In a recent interview on CNBC, Rosenstein said that the market is fairly valued and believes his fund could take advantage of the market volatility. Barry also stated that a migration from active to passive style could create more opportunities for hedge funds. He also mentioned that the market is no longer one directional which will remind people why they need to be in hedge funds again and believes this is the kind of market where a fund like his could find interesting situation and take advantage of the volatility.

Barry Rosenstein is an activist investor and his fund is a value-oriented and an event-driven one. However, 2016 has not been kind to Rosenstein with his main fund down 4.1% in the first seven months of the year under performing the S&P which has returned 6.3%. In this article, we are going to take a closer look at Rosenstein’s comments about three companies, including one in which JANA sold out its stake during the third quarter.

While there are many metrics that investors can assess in the investment process, hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details).

AutoNation Inc (NYSE:AN) is a US-based automotive company, operating in three segments – domestic, import and premium luxury. During the second quarter, Jana Partners initiated a new position of 3.04 million shares according to the fund’s 13F filing, but on CNBC, Rosenstein mentioned that “he is out of AutoNation”. The stock has lost 10% in the last three months, when the S&P was down just 1.5%. Year-to-date, AutoNation Inc. (NYSE:AN)’s stock is down by a whopping 22%. America’s largest automotive retailer has a market capitalization of $4.8 billion. For the third quarter, the company reported EPS of $1.05, missing the estimates by $0.10, while revenue of $5.57 billion was $40 million lower than expected. A total of 28 funds in our database held long positions in AutoNation Inc (NYSE:AN) with a total value of $1.24 billion at the end of the second quarter.

On the next page, we will discuss two companies that JANA Partners remained bullish on in the third quarter.

ConAgra Foods Inc (NYSE:CAG) represented JANA’s largest position, as the fund held 18.04 million shares worth $862.32 million at the end of June. The stock has gained 12% since the beginning of the year and is trading at 42 times its earnings. The CEO of this giant food company is looking at selling a few businesses to strengthen its existing brands and cut annual costs. Though he cut his position in this stock during the third quarter, Rosenstein said he is impressed with ConAgra’s management and believes that the company will benefit from its collection of brands that have the potential to grow earnings in double digits, and through attractive acquisitions. The company expects revenue and EPS to grow at 1%-2% and 10% CAGR, respectively, over the next four years. The number of funds from our database that held shares of ConAgra went up by two to 41 between April and June.

Walgreens Boots Alliance Inc (NASDAQ:WBA) is amongst the top four holdings of JANA Partners with the fund owning 4.58 million shares valued at $381.30 million. However, in the third quarter, JANA trimmed its exposure to the stock and Barry Rosenstein also left his position on the board of Walgreens. Rosenstein stated that Walgreens is a great company and have achieved a tremendous growth. During the second quarter, the number of funds tracked by us holding the stock came down to 67 from 72. Walgreens Boots Alliance Inc (NASDAQ:WBA) has been growing both revenues and operating income over the last five years. 

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