JANA Partners is the newest guru to join the group of admired value investors on GuruFocus.
The fund, founded in 2001 by Barry Rosenstein, is a value-oriented, event-driven firm that invests long or short in companies expected to undergo change. JANA is located in New York and has about $11 billion in assets under management. According to an interview with Barron’s in May, the firm’s strategy is mostly based on free-cash-flow multiples, but will also take an activist approach if necessary. Rosenstein and Co-Portfolio Manager David DiDomenico look for undervalued companies with catalysts that can unlock value.
The following stocks are JANA’s top five holdings as of the third quarter:
SPDR S&P 500 ETF (SPY, Financial)
The fund holds a little over 30% of the portfolio in a put option in the S&P 500 ETF. At the end of the third quarter, JANA held 29,700,000 shares of the ETF. The stock has been up 12% over the past year.
During the quarter, the fund added a whopping 12,063,122 shares to its stake in eBay, for a total of 13,063,122 shares. The company accounts for 3.8% of the portfolio.
eBay’s stock has been up 1% over the past year, and according to the Peter Lynch chart, is nearing its fair valuation.
GuruFocus rates eBay’s business predictability as 4 out of 5 stars, due to its consistent revenue and earnings growth. Revenue growth was almost 18% over the past five years, while free cash flow grew 12.6% over the same time period.
The company’s gross margin has been decreasing over time, indicating the cost of doing business is increasing faster than revenue.
Walgreens Boots Alliance (WBA, Financial)
The fund holds 12,500,000 shares in Walgreens Boots Alliance, which comprises 3.8% of the portfolio. WBA is the resulting holding company from the merger between Walgreens and European drugstore chain Alliance Boots in December.
The company’s stock has been up 29% over the past year. When comparing the price to the Peter Lynch earnings line, it’s evident that the stock is overvalued.
Diluted earnings per share have been in decline since 2011, and recorded at $2.00 in FY 2014. In addition, the current P/E ratio is 35.5, which is near the 10-year high.
WBA has continuously increased its dividend since 1985; the current yield is 1.7%, while the five-year growth rate 21.9%.
Energy Select Sector SPDR (XLE, Financial)
The fund sold 11,200,000 shares of its put option in the Energy Select Sector ETF, leaving a remaining 7,800,000 shares. The holding represents 3.7% of the portfolio.
The ETF has been down 12% over the past year.
The fund holds 9,694,002 shares in PetSmart, which accounts for 3.5% of the portfolio. JANA initiated the position in the second quarter, making this a relatively new holding.
It seems the fund chose a good time to buy PetSmart, whose stock has been up 26% over the past year, and was undervalued at the time of the purchase according to the Peter Lynch chart.
GuruFocus rates PetSmart’s business predictability as a perfect 5-stars. In addition, the DCF model projects a fair value of $85.01, which is a 4% margin of safety.
As of the third quarter, other gurus who hold stakes in the company include John Paulson (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio).
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