About six to seven weeks after the end of each fiscal quarter, the SEC requires hedge funds and many other large investors to disclose many of their long positions in publicly traded stocks in 13F filings. Iridian Asset Management, a special situations fund managed by David Cohen and Harold Levy, has turned in their homework a bit early and so we have the opportunity to look at what this investment team had in its portfolio at the end of September. Read on for our quick take on the fund’s five largest positions and compare them to previous filings.
Tyco International Ltd. (NYSE:TYC) crept into the top slot in Iridian’s 13F portfolio, as the fund’s position of 5.3 million shares was up from the 5 million that it had reported owning at the end of the second quarter. Tyco recently completed its breakup into three separate businesses, so it is now mostly a fire protection company. It currently trades at 15 times forward earnings estimates and has a market capitalization of just under $13 billion. Read our article from last summer about the investment opportunities in the Tyco breakup. We think it might be best to wait for a full quarter of results from the stand-alone company before taking a position.
Iridian slightly reduced its stake in Wyndham Worldwide Corporation (NYSE:WYN), from 5.1 million shares to 5.0 million. This follows a quarter in which the fund had sold 21% of its Wyndham holdings. The hotel and vacation rentals company saw its earnings fall 9% in the third quarter versus a year earlier, and trades at a fairly high trailing price-to-earnings multiple of 20, but Wall Street analysts expect better performance in 2013 and so the stock trades at 14 times consensus earnings for next year. We’d like to see better results than what the company has done recently, and think that analysts might be being too optimistic.
The fund also liked Omnicare, Inc. (NYSE:OCR), with another small increase in that position to a total of 7.7 million shares. Omnicare is a $3.9 billion market cap healthcare company which provides pharmacy services to senior communities as well as healthcare and correctional institutions. Its earnings doubled last quarter compared to the third quarter of 2011, and the sell-side expects this progress to continue: while its trailing P/E is above 20 it trades at only 10 times forward earnings estimates and at a five-year PEG ratio of 1. We think that it would be worth taking a closer look at the company.
Eastman Chemical Company (NYSE:EMN) was another stock that Iridian sold out of slightly, closing September with 4.5 million shares in the fund’s 13F portfolio. Eastman’s margins have been down, with its most recent quarter showing significantly higher sales than a year earlier but underperforming on the bottom line. It trades at 16 times trailing earnings, and as such would need to rebound in order to justify the current stock price. Eastman is up 49% over the last year and we think that the stock price should stagnate for some time in order to allow the company’s performance to catch up.
Auto parts store AutoZone, Inc. (NYSE:AZO) was another of the fund’s top picks as Iridian bumped its holdings to just over 640,000 shares from about 600,000 three months earlier. Billionaire Eddie Lampert’s ESL Investments had initiated a position in Autozone during the second quarter of the year, as auto-related companies in general become seen as potential value stocks. Autozone trades at trailing and forward P/E multiples of 16 and 12, respectively, and has been experiencing moderate growth. We think that there are better ways to play the auto theme, including the automakers themselves, but investors who don’t like that idea could possible consider Autozone.
