Raging Capital Double-Shorting Valeant, Goes Long AFI, CAVM, Others

Raging Capital Management is a New Jersey-based hedge fund founded in 2006 by William Martin. The fund manages a U.S. equity portfolio worth over $650 million as of June 30, and invests primarily in technology, energy, industrial, consumer goods, and utilities stocks. Mr. Martin also founded Raging Bull, one of the earliest online stock trading platforms of the dot com era. Raging Capital has been a strong performer in 2016, having returned 5.1% in the second quarter, and 14% so far this year. The investment firm has also delivered a compound annual growth rate of 21.2% since its inception.

In this article we’ll take a look at several moves made by the activist hedge fund during the second quarter, and the latest concerning its shorting of embattled pharmaceutical company Valeant.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Armstrong Flooring Inc (NYSE:AFI)

– Shares Owned by Raging Capital Management (as of June 30): 2.66 million

– Value of Raging Capital Management’s Holding (as of June 30): $45.02 million

Raging Capital acquired approximately 2.66 million shares of Armstrong Flooring Inc (NYSE:AFI) during the three-month period ended June 30. The stake in the Pennsylvania-based flooring solutions company accounts for around 6.9% of the value of the activist hedge fund’s equity portfolio. The company reported a 33.8% fall in profits for the second quarter, having earned $0.56 per share on $314.3 million in revenue, though the results did beat analysts’ estimates of $0.51 in EPS and $311.65 million in revenue. In an interview with Value Investor Insight at the end of May, Mr. Martin said that the company is well positioned in a robust housing market with its leading hardwood-floor brands, and that he expects its performance to improve as the recently-spun off company addresses some missteps made by its former parent company. 16 hedge funds in our system own shares of Armstrong Flooring Inc (NYSE:AFI) as of June 30, and are very overweight the stock, owning 45.20% of its float.

Cavium Inc (NASDAQ:CAVM)

– Shares Owned by Raging Capital Management (as of June 30): 834,925

– Value of Raging Capital Management’s Holding (as of June 30): $32.22 million

California-based semiconductor company Cavium Inc (NASDAQ:CAVM) is another noteworthy new addition to Raging Capital’s portfolio during the second quarter. The fund acquired 834,925 shares of the company, worth $32.22 million on June 30. Last week, Cavium completed its acquisition of QLogic, a networking and storage solutions company, which it bought for $1.3 billion. Cavium Inc (NASDAQ:CAVM) earned $0.41 per share during the second quarter, in-line with estimates, while revenue of $105 million narrowly exceeded the forecasts of $104.9 million. The stock is down by over 16% so far this year.

On the next page we’ll discuss the other big moves made by Raging Capital during the second quarter.