This article discusses the top 10 stock picks of Paul Singer’s Elliott Management at the end of the second quarter.
Paul Singer and activist investing are two words that invariably land up being used together. One cannot talk about activist investing without mentioning its stalwarts like Mr. Singer and Carl Icahn, who made billions by forcing company managements to get their act together. The name of Mr. Singer is still enough to send shivers down the spine of executives and corporate boards across the world. However, very few people know that Mr. Singer didn’t take the conventional route of earning a degree in economics or finance or getting an MBA before making inroads into the asset management industry. He obtained a B.S. in psychology from the University of Rochester in 1966 and a J.D. from Harvard Law School in 1969, following which, Mr. Singer worked as an attorney for law firms.
He left the legal profession in 1977 to start Elliott Management in New York with $1.3 million in seed capital from friends and family. In 2020, Elliott shifted its headquarters to West Palm Beach, Florida, and according to the firm’s website, it manages assets worth $55.7 billion and employs 499 people as of June 30, 2022.
Elliott Management, right since its inception, has focused on distressed securities. While it started as a hedge fund focusing on convertible arbitrage, Mr. Singer slowly shifted the fund’s focus toward companies and later countries facing financial trouble. In the past, Elliott has been involved in various well-publicized restructurings, including those of WorldCom, Enron, TWA, and MCI.
Elliott Management’s Portfolio
The most important finding from Elliott Management’s latest 13F filing was that the fund sold its entire stake in Twitter, Inc. (NYSE:TWTR) during the second quarter. The stake comprised 10 million shares of the company. Besides Twitter, Inc., Elliott Management also liquidated all of its holdings in 10 companies and reduced its stake in 4 companies. Furthermore, the fund’s top 10 holdings at the end of June which included derivatives positions and names like Marathon Petroleum Corp (NYSE:MPC), Peabody Energy Corporation (NYSE:BTU) and Suncor Energy Inc. (NYSE:SU) alone accounted for almost 72% of the value of its $8.67 billion 13F portfolio at the end of June.
Paul Singer of Elliott Management
Our Methodology
At Insider Monkey, we track the portfolios of about 895 hedge funds as of the second quarter of 2022, closely monitoring the stocks they buy and sell. For this article, we selected Paul Singer’s top 10 stock picks based on Elliott Management’s most recent 13F filing with the SEC for the quarter ending June 30.
Paul Singer’s Latest Portfolio: Top 10 Stock Picks
10. Citrix Systems, Inc. (NASDAQ:CTXS)
Elliott Management’s Stake Value: $116,604,000
Percentage of Elliott Management’s 13F Portfolio: 1.34%
Number of Hedge Fund Holders: 42
Elliott Management has had a long history with Citrix Systems, Inc.. The fund acquired a stake in the enterprise software company for the first time in June 2015 and immediately asked for changes in how the company was being run. As a result, Elliott Management partner Jesse Cohn was given a board seat by the company, and he pushed for Citrix Systems, Inc.’s then CEO, Mark Templeton, to be removed from that position, which eventually happened.
Citrix Systems, Inc.’s stock performed reasonably well between June 2015 and November 2019 – returning over 100% versus the S&P’s 49.5% – the period Elliott Management held a stake in the company. In late 2019, Elliott Management disclosed that it had sold its entire holdings in Citrix Systems, Inc., and Mr. Cohn resigned from the company’s board in early 2020.
Things became interesting when Elliott Management again initiated a position in Citrix Systems, Inc., disclosing that it had built a stake worth over $1 billion on September 7, 2021. Immediately after revealing this information, Elliott Management made its intention clear that it was looking for a partner to take the company private. On January 31, Citrix Systems, Inc. announced that its shareholders have agreed to sell the company to Elliott Management and Vista Equity Partners for an enterprise value of $16.5 billion. According to the terms of the deal, Citrix Systems, Inc.’s shareholders would be getting $104 for each share they own, valuing the company’s equity at close to $13 billion. Regulators have already approved this deal in Turkey and the United States, and most analysts expect it to close soon.
9. Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD)
Elliott Management’s Stake Value: $121,800,000
Percentage of Elliott Management’s 13F Portfolio: 1.4%
Number of Hedge Fund Holders: 26
Aerojet Rocketdyne Holdings, Inc. was the only new entrant in Elliott Management’s top 10 stock picks during Q2. Although the fund has disclosed only a passive stake, which accounts for 3.72% of all the company’s outstanding shares, Elliott Management has started many of its activist campaigns and acquired companies of similar size by first building a passive stake.
Aerojet Rocketdyne Holdings, Inc. has been in the news multiple times this year. The company is the last rocket designer and manufacturer in the United States that still trades as an independent public company. In late 2020, aerospace and defense major Lockheed Martin Corporation (NYSE:LMT) announced that it would acquire Aerojet Rocketdyne Holdings, Inc. for $4.4 billion. However, in January 2022, the FTC said it would sue to block the acquisition as it would give Lockheed Martin Corporation (NYSE:LMT) a dominant position in solid fuel rocket motors and hurt other defense contractors.
Aerojet Rocketdyne Holdings, Inc. was also in the news because its former chairman, Warren Lichtenstein, who is an activist himself and the founder and chairman of Steel Partners Holdings LP (NYSE:SPLP), launched a proxy fight to take control of Aerojet Rocketdyne Holdings, Inc.’s board. However, Mr. Lichtenstein lost the proxy fight that pitted him against the company’s CEO, Eileen Drake, and left the company’s board in June this year.
8. E2open Parent Holdings, Inc. (NYSE:ETWO)
Elliott Management’s Stake Value: $125,766,000
Percentage of Elliott Management’s 13F Portfolio: 1.45%
Number of Hedge Fund Holders: 26
Elliott Management initiated a stake in E2open Parent Holdings, Inc. during the first quarter of 2021 by purchasing 25,171,131 shares and increasing it to 27,973,575 shares in the next quarter. However, since then, the fund has considerably reduced its stake in E2open Parent Holdings, Inc. and owned only 16.16 million company shares at the end of June.
E2open Parent Holdings, Inc. is based in Austin, Texas, and provides a cloud-based, end-to-end supply chain management SaaS platform. The company has a long and interesting history. Founded in 2000, the same year the tech bubble of the 1990s burst, E2open Parent Holdings, Inc. went public in July 2012 through an IPO. After merely 3 years of going public, E2open Parent Holdings, Inc. was acquired by Insight Venture Management LLC, a private equity and venture capital firm.
E2open Parent Holdings, Inc. again became an independently traded public company in February 2021 via a SPAC, CC Neuberger Principal Holdings 1, which was put together by Neuberger Berman and CC Capital. Since going public, the stock initially traded in a range but started falling late last year and is now trading down by 32% year-to-date.
7. Uniti Group Inc. (NASDAQ:UNIT)
Elliott Management’s Stake Value: $192,881,000
Percentage of Elliott Management’s 13F Portfolio: 2.22%
Number of Hedge Fund Holders: 21
Uniti Group Inc. is a specialized REIT that owns and operates over 6.7 million fiber strand miles and other communication infrastructure in the United States. Uniti Group Inc.’s stock has fallen by more than 46% in the last five years but is currently trading very close to where it traded in the third quarter of 2020 when Elliott Management initiated its stake in the company. Apart from Elliott Management, other funds that had a substantial stake in Uniti Group Inc. included Howard Marks’ Oaktree Capital Management and billionaire Ken Griffin’s Citadel Investment Group, which owned 3.4 million shares and 3.54 million shares, respectively, at the end of June.
Uniti Group Inc. has slashed its quarterly dividend drastically from $0.60 per share it used to pay in 2018 to $0.15 per share it currently pays every quarter. However, the REIT still trades at an attractive annual dividend yield of 5.87%. In addition, many analysts covering the company believe that trading at a price to funds from operations (P/FFO) multiple of 6.45, Uniti Group Inc.’s stock is extremely cheap, and it is significantly underpriced compared to the value of the asset the company owns.
6. Switch, Inc. (NYSE:SWCH)
Elliott Management’s Stake Value: $193,798,000
Percentage of Elliott Management’s 13F Portfolio: 2.23%
Number of Hedge Fund Holders: 31
Elliott Management acquired a stake in Switch, Inc. in 2021 and, through the various funds that the firm operates, became the largest owner of class A stock of Switch, Inc. at the end of June that year, representing an 11% interest in the company. Switch, Inc. has multiple classes of shares with different voting rights. Within a few months of Elliott Management acquiring a stake, Switch, Inc. revealed that it was considering changing its status from a company to a REIT, a proposition that its shareholders approved in November 2021.
In May this year, Bloomberg reported that Brookfield Asset Management was in talks with Switch, Inc. to acquire the latter. However, Brookfield’s bid was thwarted by DigitalBridge Group, Inc. (NYSE:DBRG). On May 11, Switch, Inc. announced that it has entered into a definitive agreement with DigitalBridge Group, Inc. (NYSE:DBRG) and Australian infrastructure manager IFM to get acquired at $34.25 per share in an all-cash deal that valued the company at around $11 billion.
5. Suncor Energy Inc. (NYSE:SU)
Elliott Management’s Stake Value: $350,744,000
Percentage of Elliott Management’s 13F Portfolio: 4.04%
Number of Hedge Fund Holders: 47
Not only has Suncor Energy Inc.’s stock skyrocketed by more than 80% in the last one year, but its popularity among smart money investors has also been on the rise. From 895 hedge funds tracked by Insider Monkey, 47 funds disclosed a stake in Suncor Energy Inc. at the end of Jun 2022, more than double from 22 funds that reported a stake at the end of Q3 2020. Though Elliott Management didn’t add to its stake of 10 million shares of the company that it initiated in Q1, the value of the fund’s holdings in the company grew to $350.7 million from $326.1 million due to the rise in Suncor Energy Inc.’s stock in Q2.
For its fiscal 2022 second quarter, Suncor Energy Inc., on August 4, reported GAAP EPS of $2.20 on revenue of $12.6 billion, beating analysts’ estimates by $0.26 and $2.38 billion, respectively. However, despite beating estimates, Suncor Energy Inc.’s stock declined post the earnings release as the company reduced its production guidance for the financial year 2022.
4. Nielsen Holdings plc (NYSE:NLSN)
Elliott Management’s Stake Value: $385,452,000
Percentage of Elliott Management’s 13F Portfolio: 4.44%
Number of Hedge Fund Holders: 45
Elliott Management reported a stake in Nielsen Holdings plc (NYSE:NLSN) for the first time in its regulatory filing for the third quarter of 2018. Since then, Nielsen Holdings plc’s (NYSE:NLSN) stock has fallen by more than 30%. This loss would have been even more severe if it wasn’t for the announcement by Nielsen Holdings plc (NYSE:NLSN) on August 9 that its major shareholder Windcare had agreed to it being taken private by a consortium led by Elliott Management. Following the announcement, the company’s stock shot up by 21% in a day.
Elliott Management had been in talks with Nielsen Holdings plc’s (NYSE:NLSN) management over the past few quarters to take the company private. In March, The Wall Street Journal reported that both sides had reached an agreement under which a consortium led by Elliott Management’s private equity arm and Brookfield Asset Management would take Nielsen Holdings plc (NYSE:NLSN) private in a deal that valued the company at $28 per share, or $16 billion including debt. However, the deal faced a roadblock when Windcare, one of the largest shareholders of Nielsen Holdings plc (NYSE:NLSN), announced that it planned to block the merger. With Windcare agreeing to be part of the consortium that takes Nielsen Holdings plc (NYSE:NLSN) private, several analysts think the deal will eventually close after getting approvals from antitrust regulators.
3. Peabody Energy Corporation (NYSE:BTU)
Elliott Management’s Stake Value: $551,593,000
Percentage of Elliott Management’s 13F Portfolio: 6.35%
Number of Hedge Fund Holders: 29
Peabody Energy Corporation started trading again on the New York Stock Exchange in 2017 after emerging from a year-long $8 billion chapter 11 bankruptcy. Elliott Management was one of the biggest beneficiaries of this relisting as it had the right to buy additional Peabody Energy Corporation’s shares at a 35% to 45% discount when the company started trading again on the exchanges.
Elliott Management has been Peabody Energy Corporation’s largest shareholder since the company got relisted. In February 2020, Peabody Energy Corporation’s management agreed to include Elliott Management’s nominees Dave Miller, Samantha Algaze, and Darren Yeates to its board.
With coal demand surging around the world post the pandemic, Peabody Energy Corporation’s stock has been one of the biggest beneficiaries of it, rising over 110% in the past year. Most analysts on Wall Street who track the company continue to remain bullish on the stock with a consensus price target of $32.67, representing a potential upside of 27.8% from the stock’s last trading price.
2. Marathon Petroleum Corp (NYSE:MPC)
Elliott Management’s Stake Value: $909,654,000
Percentage of Elliott Management’s 13F Portfolio: 10.48%
Number of Hedge Fund Holders: 50
Marathon Petroleum Corp hit a peak in popularity among funds tracked by Insider Monkey at the end of 2018 when 79 funds reported holding a stake in the company. Since then, although the stock of Marathon Petroleum Corp has made new lifetime highs, its popularity among smart money investors hasn’t seen a considerable increase, with only 50 hedge funds disclosing a stake in the company at the end of June. Elliott Management, which initiated its stake in Marathon Petroleum Corp during the second quarter of 2019, immediately proceeded to send a letter to the company’s management. In its letter, Elliott Management demanded that Marathon Petroleum Corp’s management split the company into three individual firms, which according to the fund, would unlock $22 billion in value for shareholders.
On August 16, Marathon Petroleum Corp announced that the US Federal Energy Regulatory Commission had approved its request for more time to convert its Kenai liquefied natural gas export plant in Alaska to an import terminal. On the same day, analysts at Barclays upped their price target on the stock to $112 from $94 while maintaining an ‘Overweight’ rating on it.
1. Howmet Aerospace Inc. (NYSE:HWM)
Elliott Management’s Stake Value: $1,291,494,000
Percentage of Elliott Management’s 13F Portfolio: 14.89%
Number of Hedge Fund Holders: 39
Howmet Aerospace Inc. retained its spot as Elliott Management’s top stock pick for the third quarter in a row at the end of Q2. Howmet Aerospace Inc. came into existence after Arconic Corporation (NYSE:ARNC) announced in mid-2020 that its board had approved the company’s separation into two independent, publicly traded companies. Elliott Management has had a history with Arconic Corporation (NYSE:ARNC), where the fund had engaged in a bitter fight with the company’s board a few years ago.
Since it started trading publicly as an independent company, Howmet Aerospace Inc.’s stock has more than doubled and currently trades up by 16% year-to-date. On August 4, the company reported non-GAAP earnings per share of $0.35 on revenue of $1.39 billion for the second quarter of its fiscal year 2022, while analysts had projected it to report non-GAAP EPS of $0.33 on revenue of $1.37 billion. Along with its earnings release, Howmet Aerospace Inc. also raised its full-year guidance for FY 2022. It now expects revenue between $5.645 billion and $5.715 billion and adjusted EPS between $1.38 and $1.42. The company had earlier estimated FY 2022 revenue to be in the $5.56 billion and $5.72 billion range and adjusted EPS between $1.33 and $1.45.
You can also look at Simon Sadler’s Segantii Capital is Bullish on These 10 Stocks and 7 Best Stocks to Buy According to Stephen Feinberg’s Cerberus Capital Management
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This article is originally published at Insider Monkey.
