In a recent 13D filing with the Securities and Exchange Commission, Jeffrey Ubben’s ValueAct Capital disclosed a 6.8% ownership stake in Agrium Inc. (NYSE:AGU), amounting to 9.72 million shares. ValueAct Capital increased its overall position in the global leader in agricultural products and services by about 1.76 million shares, or 22% since its most recent 13F filing.
We follow hedge funds like ValueAct Capital because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 142%, outperforming the S&P 500 ETF by nearly 83 percentage points (see more details here).
ValueAct Capital is an activist hedge fund firm founded by its current Chief Executive and Chief Investment Officer, Jeffrey Ubben, in 2000. Ubben, unlike most of the activists who pursue a confrontational approach, is a quiet instigator who aims at creating value by collaborating with the board and management of the companies he invests in. The San-Francisco-based activist hedge fund firm is behind some of the world’s most notorious corporate overhauls and has attempted to push for changes at around 75 firms since its inception. ValueAct Capital has also delivered quite strong returns throughout its existence, generating an annualized return of 17% net-of-fees. The latest 13F filing displays that the value of the public equity portfolio managed by Ubben equals $18.09 billion. In the following article, we are going to start with a discussion on the most recent move made by Ubben in Agrium Inc. (NYSE:AGU), followed by briefly running through two other fresh picks of ValueAct Capital, which represent the following companies: Precision Castparts Corp. (NYSE:PCP) and WESCO International Inc. (NYSE:WCC).
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Agrium Inc. (NYSE:AGU) is a major global crop input retail supplier of agricultural products and services. In addition to that, the company produces and markets the three major agricultural nutrients (i.e. nitrogen, phosphorus, and potassium), making it a leading wholesale producer of this kind in the world. The shares of Agrium have increased by over 9% year-to-date and might keep rising as the outlook of the company remains relatively strong. Agrium has been growing at a high pace lately through a combination of organic growth, which is the true growth for the core of the company, and acquisitions. Currently, there are a few short-term challenges for Agrium that might have already been priced into or might still slightly affect the company. For instance, nitrogen prices are expected to decrease due to the uncertainty regarding Chinese export supplies, so Agrium might suffer a bit from this environment. Nevertheless, despite its current challenges, Agrium is expected to benefit from the healthy trends in the agriculture and crop input markets in the long-term. Precisely, it is anticipated that the demand for crop protection products will rise, which will benefit the company’s retail business.
Let’s briefly discuss the financial performance of the company during its fiscal first quarter of the year. Considering the fact that the delayed start to the spring season in the U.S. affected the financial performance of Agrium, the company still managed to deliver quite strong financial results. Agrium reported net earnings of $14 million for the quarter, significantly higher than the $3 million figure posted during the same period a year ago. However, the company posted revenues of $2.87 billion, which marks a decrease of 7% year-over-year. The drop was triggered by a double-digit drop in wholesale sales. At the same time, Agrium’s Board of Directors announced an increase in its cash dividend by 12% to $3.50 per common share on an annualized basis, a yield of 3.38% at present, which signals that the company is in solid financial health despite facing some short-term challenges. The hedge fund founded by D. E. Shaw is among the largest shareholders in Agrium Inc. (NYSE:AGU) within our database, owning 1.27 million shares valued at $132.24 million as of March 31, 2015.
The most recent 13F filing of ValueAct Capital reveals that the fund initiated a long position in Precision Castparts Corp. (NYSE:PCP) consisting of 569,185 shares, which are worth $119.53 million as of March 31. Considering the fact that the stock has decreased by 13% since the beginning of the current year, some analysts believe that the shares of Precision Castparts are trading at attractive levels relative to its industry counterparts. The company is well-known for an outstanding corporate culture, stable growth and high operating efficiency, therefore, the stock will most probably embark upon a new uptrend soon enough. From the pool of over 700 hedge funds that we track, Berkshire Hathaway, led by Warren Buffett, represents the largest shareholder in Precision Castparts Corp. (NYSE:PCP), owning 4.2 million shares.
At the same time, ValueAct Capital acquired a new stake of 1.06 million shares in WESCO International Inc. (NYSE:WCC), worth $74.42 million. Even though the stock has declined by 5% year-to-date, it has been riding a strong and clear uptrend throughout the last few months. Additionally, the trend didn’t show any strong signs of reversal even when the company announced lower-than-expected financial results for the first quarter of the year. WESCO reported first-quarter adjusted earnings of $0.90 per share, which yields a decline of 7.8% year-over-year. By the same token, the revenues generated by the company decreased by 0.3% year-over-year, dipping to a figure of $1.81 billion. Our database reveals that Joel Greenblatt’s Gotham Asset Management is among the largest investors in WESCO International Inc. (NYSE:WCC), owning 1.09 million shares.
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