It is my view that shareholder activism is widely misunderstood and overly criticized by the masses; many tend to think that activist hedge funds target certain companies for short-term gains at the expense of long-term value creation. Renowned activist investor Carl Icahn and other activists have been attempting to persuade market participants and society in general that shareholder activism is good for businesses and that this type of investing is not as short-term oriented as many would think. Numerous sources reveal that activist hedge funds have outperformed the broader market over the past several years, which is why the Insider Monkey team discusses and analyzes the majority of activists’ moves. For that reason, this article covers two 13Ds (activist positions) and one 13G (passive position) filed with the SEC by several widely-recognized hedge funds monitored by our team.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
According to a Schedule 13D filing, Ricky Sandler’s Eminence Capital LP exercised 683,561 call options underlying shares of Autodesk Inc. (NASDAQ:ADSK), which had a strike price of $35. Similarly, 683,561 put options with the same strike price expired simultaneously with the exercise of the call options. Thus, Eminence Capital entered into a straddle (i.e. options strategy that is entered into by buying a call option and a put option with the same strike price and the same expiration month in an attempt to profit from relatively large price movements), generating a decent profit on this strategy. The public filing reveals that Sandler’s fund holds 13.08 million shares of the design software and services company, accounting for 5.8% of its outstanding common stock.
Autodesk Inc. (NASDAQ:ADSK) develops software and services targeting three primary markets: architecture, engineering, and construction; manufacturing; and digital media and entertainment. The software company is currently in the process of transitioning its business model towards a single subscription model, shifting away from selling perpetual licenses and term-based offerings. This transition is likely to enhance the company’s global penetration, though it is expected to put some weight on its revenue growth in the forthcoming quarters, as subscription offerings have substantially lower up-front prices. Shares of Autodesk are up by nearly 2% for the year, after advancing by more than 40% since the beginning of October.
The number of smart money investors invested in the software maker decreased to 32 from 45 during the September quarter, so several hedge funds seem to have failed to recognize potential investor interest in this company. These 32 shareholders held 20.80% of the company’s outstanding shares as of September 30, while the value of their overall investments declined to $2.08 billion from $2.25 billion quarter-over-quarter. John Griffin’s Blue Ridge Capital acquired a 6.92 million-share stake in Autodesk Inc. (NASDAQ:ADSK) during the third quarter.
Follow Ricky Sandler's Eminence Capital
Let’s head to the next page of this article, where we discuss a 13D and a 13G submitted by Coppersmith Capital and Pennant Capital Management, respectively.
In a separate 13D filing, Jerome J. Lande and Craig Rosenblum’s Coppersmith Capital Management disclosed that the fund has entered into an agreement with Itron Inc. (NASDAQ:ITRI), under which Jerome J. Lande has been appointed to the company’s Board, effective immediately, and Peter Mainz, a candidate identified by Coppersmith, has also been appointed to the Board, effective January 1, 2016. Let us remind you that Coppersmith Capital and Scopia Capital Management, founded by Matt Sirovich and Jeremy Mindich, teamed up back in September to launch their activist campaign on the technology and services company. The two hedge funds aggregately own a 3.78 million-share, or 9.9% stake, in Itron Inc. (NASDAQ:ITRI), while Coppersmith Capital holds 2.86 million shares of this stake. According to the aforementioned agreement, Itron also formed a Value Enhancement Committee that is intended to “review, study and develop potential initiatives (including transactions) designed to create durable, sustainable long-term shareholder value”. Meanwhile, the shares of Itron are down by almost 17% in 2015, although they have advanced by more than 21% since the beginning of September.
It appears that the smart money sentiment towards Itron did not change significantly during the September quarter, as the number of hedge funds with positions in the company remained unchanged quarter-over-quarter at 16. Even so, the overall value of those positions grew to $200.41 million from $92.86 million during the three-month period. Ian Simm’s Impax Asset Management holds 1.22 million shares of Itron Inc. (NASDAQ:ITRI) as of the end of the third quarter.
Follow Jerome Lande And Craig Rosenblum's Coppersmith Capital
As stated in a Schedule 13G filing, Alan Fournier’s Pennant Capital Management currently owns 2.72 million shares of Mattress Firm Holding Corp (NASDAQ:MFRM), accounting for 7.7% of the company’s outstanding common stock. This compares with the 2.84 million-share position revealed in Pennant’s latest 13F filing. The company that engages in the retail sale of mattresses and bedding-related products has seen its shares decline by 18% so far this year. The stock is currently trading at a rather expensive trailing price-to-earnings ratio of 29.15, which is above the average of 22.73 for the companies included in the S&P 500. Nevertheless, the company’s forward P/E ratio of 16.07, which compares far more favorably with the ratio of 17.35 for the S&P 500, points to more upside in the future (given that analyst earnings estimates are accurate). Mattress Firm Holding Corp (NASDAQ:MFRM) reported net sales of $1.92 billion for the thirty-nine weeks that ended November 3, which were up by 59.2% year-over-year. Its same-store sales grew by 2.8% year-over-year. At the end of November, Mattress Firm announced that it agreed to acquire the equity interests in HMK Mattress Holdings LLC, which serves as the holding company of the second-largest specialty mattress retailer, Sleepy’s. Mattress Firm, which is the largest specialty mattress retailer in the U.S, agreed to pay $780 million for the interests.
The number of hedge funds with stakes in Mattress Firm climbed to 13 from ten during the third quarter, though the value of their stakes shrank to $367.79 million from $583.02 million quarter-over-quarter. These smart money investors had accumulated 25.00% of the company’s shares by the end of September. Sharlyn C. Heslam’s Stockbridge Partners upped its position in Mattress Firm Holding Corp (NASDAQ:MFRM) by 10% during the July-to-September period, to 2.58 million shares.
Follow Alan Fournier's Pennant Capital Management
Disclosure: None
