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Sydnee Gatewood
Sydnee Gatewood
Articles (561) 

Jana Partners’ Top 5 Buys of 1st Quarter

Investment firm’s largest new position is in software company

Activist investment firm Jana Partners (Trades, Portfolio) disclosed it established 23 new positions when it released its first-quarter portfolio on May 15.

The New York-based firm, which was founded by Barry Rosenstein in 2001, specializes in event-driven investing, which means it invests in undervalued companies with potential catalysts for growth. In some cases, it will take an activist investment approach to unlock value.

Among the companies the firm established positions in during the quarter were Autodesk Inc. (NASDAQ:ADSK), Anthem Inc. (NYSE:ANTM), Boston Scientific Corp. (NYSE:BSX), Lam Research Corp. (NASDAQ:LRCX) and Dr Pepper Snapple Group Inc. (DPS).

Autodesk

Having previously closed a position in Autodesk in the first quarter of 2014, the firm started a new 1.3 million-share stake for an average price of $119.09 per share, giving it 4.73% portfolio space.

The San Rafael, California-based software company has a market cap of $29.63 billion; its shares were trading around $135.23 on Tuesday with a forward price-earnings ratio of 151.52 and a price-sales ratio of 14.44.

The Peter Lynch chart below shows the stock is trading significantly higher than its fair value, suggesting it is expensive.

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GuruFocus rated Autodesk’s financial strength 4 out of 10 as its debt-to-equity ratio underperforms a majority of competitors. Its Altman Z-Score of 3.33, however, indicates it is in good financial standing. The company’s profitability and growth did not fare much better, scoring 5 of 10, as its operating margin underperforms 82% of competitors. It also has a moderate Piotroski F-Score of 5 and a one-star (out of five) business predictability rating. GuruFocus also warns that the company’s revenue per share has been declining for at least the past five years and that it has poor earnings quality.

Despite this performance, quite a few gurus own the stock. Of the gurus invested in Autodesk, Andreas Halvorsen (Trades, Portfolio) has the largest holding with 1.87% of outstanding shares. Mario Gabelli (Trades, Portfolio) also established a position during the quarter. Other guru shareholders include Chase Coleman (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Leon Cooperman (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio).

Anthem

Jana invested in 610,593 shares of Anthem for an average price of $234.91 per share, expanding the portfolio 4%.

Headquartered in Indianapolis, the health insurance company has a market cap of $59.22 billion; its shares were trading around $232.04 on Tuesday with a price-earnings ratio of 14.86, a price-book ratio of 2.20 and a price-sales ratio of 0.69.

According to the Peter Lynch chart below, the stock is trading near its fair value.

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Anthem’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. GuruFocus indicators found the company’s revenue per share growth has slowed in the past year, while its net margin outperforms 56% of competitors. It also has a near-perfect business predictability rating of 4.5-stars.

With 1.2% of outstanding shares, Larry Robbins (Trades, Portfolio) is the company’s largest guru shareholder. Other top guru shareholders include Halvorsen, Barrow, Hanley, Mewhinney & Strauss, the Vanguard Health Care Fund (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Hotchkis & Wiley and Jeremy Grantham (Trades, Portfolio).

Boston Scientific

The firm purchased 4.7 million shares of Boston Scientific for an average price of $27.15 per share. The trade had an impact of 3.84% on the portfolio.

The medical device manufacturer, which is based in Marlborough, Massachusetts, has a market cap of $40.7 billion; its shares were trading around $29.50 on Tuesday with a price-earnings ratio of 421.43, a price-book ratio of 5.79 and a price-sales ratio of 4.43.

Based on the Peter Lynch chart below, the stock appears to be significantly overpriced as it is trading well above its fair value.

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While the company has been issuing new long-term debt in recent years, GuruFocus rated Boston Scientific’s financial strength 5 out of 10 as the debt load is manageable. Its Altman Z-Score of 2.05, however, indicates it is under minor financial pressure. Its profitability and growth scored a 7 of 10 rating as GuruFocus indicators found its operating margin is expanding. In addition, the company has a moderate Piotroski F-Score of 6 and a one-star business predictability rating.

The Vanguard Health Care Fund is the company’s largest guru shareholder with 2.79% of outstanding shares. Lee Ainslie (Trades, Portfolio) also established a holding in the most recent quarter. Other guru shareholders include David Tepper (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Jim Simons (Trades, Portfolio), Pioneer, David Carlson (Trades, Portfolio) and the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio).

Lam Research

Jana bought 347,565 shares of Lam Research for an average price of $198.07 per share, giving the position 2.1% portfolio space.

The Fremont, California-based semiconductor equipment manufacturer has a market cap of $32.96 billion; its shares were trading around $200.94 on Tuesday with a price-earnings ratio of 19.46, a price-book ratio of 4.85 and a price-sales ratio of 3.46.

The Peter Lynch chart below suggests the stock is overpriced since it is trading above its fair value.

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Boosted by a comfortable level of interest coverage and a high Altman Z-Score of 5.71, Lam Research’s financial strength was rated 7 out of 10. Its profitability and growth was rated 9 of 10 as the company has an expanding operating margin and a high Piotroski F-Score of 8.

Other gurus who established positions in Lam Research during the quarter include Tepper, who now has the largest position, and Louis Moore Bacon (Trades, Portfolio). Pioneer, Joel Greenblatt (TradesPortfolio), Grantham, Ainslie, Caxton Associates (Trades, Portfolio), Scott Black (Trades, Portfolio), Dreman and several others also own the stock.

Dr Pepper Snapple

The firm invested in 590,329 shares of Dr Pepper Snapple for an average price of $110.86 per share, expanding the portfolio 2.08%.

The Plano, Texas-based beverage company, which is being acquired by Keurig Green Mountain Inc. (NASDAQ:GMCR), has a market cap of $21.51 billion; its shares were trading around $119.37 on Tuesday with a price-earnings ratio of 20.56, a price-book ratio of 8.67 and a price-sales ratio of 3.21.

According to the Peter Lynch chart below, the stock is expensive since it is trading higher than its fair value.

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While the company has been issuing new long-term debt for the past several years, GuruFocus rated Dr Pepper’s financial strength 5 out of 10 as it is at a manageable level. Its Altman Z-Score of 3.09 indicates it has a healthy financial situation. Dr Pepper’s profitability and growth was rated 7 of 10, driven by the company’s expanding operating margin. The company also has a moderate Piotroski F-Score of 5 and a three-star business predictability rating.

Jana is not the only guru looking to benefit from the company’s merger with Keurig. Simons, Gabelli and Grantham all added to their holdings in the first quarter. Pioneer, Greenblatt, Auxier and Manning & Napier Advisors Inc. also own the stock.

Other trades

During the quarter, Jana also initiated positions in Electronic Arts Inc. (NASDAQ:EA), Agilent Technologies Inc. (NYSE:A), the SPDR S&P 500 exchange-traded fund (SPY), WestRock Co. (NYSE:WRK) and Adobe Systems Inc. (NASDAQ:ADBE), among others.

The firm’s $3.4 billion portfolio, which is composed of 43 stocks, is largely invested in the consumer cyclical and health care sectors.

Disclosure: No positions.

About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneeg

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