The Latest on Engaged Capital’s Positions, Performance, and Activist Campaigns

Glenn W. Welling‘s activist hedge fund Engaged Capital recently released its 2016 second quarter letter to investors, revealing the performance of its flagship fund during the second quarter and first-half of 2016. Unlike most hedge funds, which saw severe drawdowns during the first quarter, the Engaged Capital Flagship Master Fund LP ended the period with gains. However, it lost 3.22% during the second quarter, which pushed its first-half net return to negative 0.49%.

According to Engaged Capital’s 13F filing for the June 30 reporting period, its U.S. equity portfolio was worth $284.02 million at the end of June and consisted of long positions in only 11 stocks. The filing also revealed that during the second quarter, the fund had a quarterly turnover rate of a mere 9%, having reduced the size of two of its holdings, adding shares to two of its positions, and selling out of one stock entirely. In this article, we’ll take a look at Engaged Capital’s five prominent equity holdings and discuss their performance so far in 2016.

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).

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#5 Jamba, Inc. (NASDAQ:JMBA)

– Shares Owned by Engaged Capital (as of June 30): 1.83 Million

– Value of Holding (as of June 30): $18.84 Million

Let’s start with Jamba, Inc. (NASDAQ:JMBA), which dropped two spots in Engaged Capital’s equity portfolio during the second quarter to rank as its sixth-largest equity holding at the end of June. In its second quarter letter, Engaged Capital mentioned that the company’s present valuation doesn’t reflect its true value and suggested that the stock can see meaningful upside if the company focuses more on its refranchising efforts and undertakes cost cutting measures. Engaged Capital also thinks that Jamba, Inc. (NASDAQ:JMBA) should sell its loss-making stores in New York and refranchise its company-owned outlets at various other locations. Jamba’s stock has been on a downward trajectory since last April and in spite of the gains it has registered this month, it is still trading down by 17.52% year-to-date. In a regulatory filing submitted on August 10,  Engaged Capital revealed that it has further upped its stake in Jamba, with it now owning 2.09 million shares of the company. Jamie Mendola‘s Pacific Grove Capital increased its holding in the company by 28% to 1.24 million shares during the April-to-June period.

#4 Medifast Inc (NYSE:MED)

– Shares Owned by Engaged Capital (as of June 30): 737,465

– Value of Holding (as of June 30): $24.53 Million

Though Engaged Capital didn’t alter its stake in Medifast Inc (NYSE:MED) during the second quarter, the value of the fund’s holding in the company increased by $2.27 million due to a 10.2% rise in Medifast’s stock during the period. The shares have continued their uptrend in the third quarter as well and are currently trading up by 20% year-to-date. Along with Jamba, Mr. Welling also sits on the Board of Medifast Inc. Engaged Capital likes the valuation of the company at current levels, however it also advocates that if the company is not able to create significant value for shareholders going forward, it must explore other strategic alternatives like going private. The fund thinks that Medifast Inc (NYSE:MED)’s “overcapitalized balance sheet also provides downside protection and capital allocation flexibility.” For its second quarter, Medifast reported EPS of $0.63 on revenue of $71.14 million versus analysts’ expectations of EPS of $0.51 on revenue of $72.01 million. Billionaire Ken Griffin‘s Citadel Investment Group initiated a stake in Medifast during the second quarter, purchasing 17,828 shares of the company.

We’ll discuss three more of Engaged Capital’s top picks on the second page of this article.