Activist Investor Jeff Smith’s 2022 Portfolio: Top 10 Stock Picks

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In this article, we will look at activist investor Jeff Smith’s top 10 stock picks for 2022. If you want to skip reading about his investment philosophy and his hedge fund’s performance, you can go directly to Activist Investor Jeff Smith’s 2022 Portfolio: Top 5 Stock Picks.

Jeff Smith is an American investor and hedge fund manager of Starboard Value. He is an alumnus of the University of Pennsylvania from where he graduated in 1994 with an undergraduate degree in economics. He founded Starboard Value in 2002. Starboard Value is an activist hedge fund that targets significantly undervalued small-cap stocks. The activist hedge fund generated a median annualized return of 15.5% per year from inception up to 2014. Roughly 84% of the fund’s activist campaigns have been a success. As of the first quarter of 2022, Jeff Smith manages over $7.54 billion in 13F securities through his hedge fund.

Jeff Smith has been dubbed “the most feared man in corporate America” by William Cohan of Fortune after he took over Darden Restaurants in October 2014. Darden Restaurants is a Fortune 500 company best known for its Olive Garden and Longhorn Steakhouse brands. Jeff Smith is among the most aggressive activist investors and has gained widespread popularity in the hedge fund industry due to his contrarian investment strategies similar to those of billionaire Carl Icahn.

Taking a look at Starboard Value’s performance over the past eight quarters, the fund’s quarter-on-quarter returns were up to 37.81% in the first quarter of 2020, its best quarter in the last two years. In the first quarter of 2021, the fund recorded quarter-on-quarter returns of 4.37%, and moving on to the first quarter of 2022, the fund’s returns were down 11.21%. In the first quarter of 2022, Starboard Value initiated 89 new positions, sold out 55 stocks, and reduced its stakes in 66 companies. The fund has a top ten holdings concentration of 60.2%.

Starboard Value has a diversified 13F portfolio and has investments across basic materials, healthcare, technology, financial services, industrials, and consumer cyclical sectors among others. Among the fund’s top 13F holdings we have AECOM (NYSE:ACM), Huntsman Corporation (NYSE:HUN), and GoDaddy Inc. (NYSE:GDDY).

Activist Investor Jeff Smith’s 2022 Portfolio: Top 10 Stock Picks

Our Methodology

To determine the top 10 stock picks of activist investor Jeff Smith, we did a comprehensive assessment of Starboard Value’s 13F portfolio. We picked the fund’s top 10 holdings at the end of the first quarter of 2022 and ranked them in increasing order of Starboard Value’s stake in them.

For each stock, we included the analyst and investor sentiment around it. We derived the hedge fund sentiment from Insider Monkey’s database, which as of the first quarter of 2022, tracks over 900 elite hedge funds.

Now that we have crunched some numbers, let’s look at the activist hedge fund’s top 10 picks.

Activist Investor Jeff Smith’s 2022 Portfolio: Top 10 Stock Picks

10. CommVault Systems, Inc. (NASDAQ:CVLT)

Starboard Value’s Stake Value: $254,553,000

Percentage of Starboard Value’s 13F Portfolio: 3.37%

Number of Hedge Fund Holders: 22

Commvault Systems, Inc. (NASDAQ:CVLT) provides data protection and information management software applications and related services in the United States and internationally. As of March 31, Starboard Value owns more than 3.8 million shares of the company which amounts to a stake of $254.55 million. The investment covers 3.37% of Starboard Value’s 13F portfolio.

This May Commvault Systems, Inc. (NASDAQ:CVLT) announced earnings for the fiscal fourth quarter of 2022 in which it beat both EPS and revenue estimates. The company reported earnings per share of $0.75, beating expectations by $0.11. Commvault Systems, Inc. (NASDAQ:CVLT) generated revenues of $205.95 million, up 7.63% year over year, and outperformed market consensus by $3.97 million.

As of this January, RBC Capital analyst Dan Bergstrom has a $75 price target and Sector Perform rating on Commvault Systems, Inc. (NASDAQ:CVLT).

At the close of Q1 2022, 22 hedge funds were long Commvault Systems, Inc. (NASDAQ:CVLT) with stakes worth $460.39 million in the company. This is compared to 19 positions in the previous quarter with stakes of $511.06 million.

9. Papa John’s International, Inc. (NASDAQ:PZZA)

Starboard Value’s Stake Value: $290,505,000

Percentage of Starboard Value’s 13F Portfolio: 3.85%

Number of Hedge Fund Holders: 27

Papa John’s International, Inc. (NASDAQ:PZZA) operates and franchises pizza delivery and carryout restaurants in the United States and internationally. As of the first quarter of 2022, 27 hedge funds are bullish on Papa John’s International, Inc. (NASDAQ:PZZA). The total stakes of these hedge funds were valued at $608.60 million. This is compared to 36 positions in the previous quarter with stakes of $707.63 million.

On May 5, Papa John’s International, Inc. (NASDAQ:PZZA) released earnings for the fiscal first quarter of 2022. The company registered an EPS of $0.29, missing expectations by $0.60. Papa John’s International, Inc. (NASDAQ:PZZA) reported revenues of $542.69 million, up 6.05% year over year, beating Wall Street expectations by $2.31 million. On May 11, UBS analyst Dennis Geiger trimmed his price target on Papa John’s International, Inc. (NASDAQ:PZZA) to $93 from $144 and maintained a Neutral rating on the shares

As of March 31, Starboard Value owns over 2.75 million shares of Papa John’s International, Inc. (NASDAQ:PZZA), which brings its stakes in the company to $290.50 million. The investment represents 3.85% of Starboard Value’s 13F portfolio.

Like AECOM (NYSE:ACM), Huntsman Corporation (NYSE:HUN), and GoDaddy Inc. (NYSE:GDDY), Starboard Value has significant stakes in Papa John’s International, Inc. (NASDAQ:PZZA).

Here is what Artisan Partners had to say about Papa John’s International, Inc. (NASDAQ:PZZA) in its ‘Artisan Small Cap Fund’ third-quarter 2021 investor letter:

Papa John’s is a global operator and franchisor of pizza delivery and carryout restaurants. The company is tracking nicely against our turnaround thesis which hinges upon an improvement in store-level economics leading to accelerating growth in restaurant development activity. Improved store-level economics is being driven in part by market share gains resulting from menu innovation. New menu items—parmesan crusted Papadias, Epic Stuffed Crust, Shaq-a-roni— coupled with enhancements to the digital/loyalty platform and supportive advertising are attracting new customers to the brand, increasing frequency of its existing customers and driving higher unit volumes and returns. As a result, the company is experiencing incremental interest from new and existing franchisees to develop new restaurants. Papa John’s opened a record 123 units in the first half of 2021 and now expects to open 220-260 new stores this year (vs. 140-180 previously)—most of which are outside of the US. Combined with ample white space globally, we believe a higher unit growth trajectory will drive an attractive and sustainable profit cycle.”

8. Corteva, Inc. (NYSE:CTVA)

Starboard Value’s Stake Value: $344,669,000

Percentage of Starboard Value’s 13F Portfolio: 4.56%

Number of Hedge Fund Holders: 39

Corteva, Inc. (NYSE:CTVA) operates in the agriculture business through two primary business segments: Seed and Crop Protection. On May 4, Corteva, Inc. (NYSE:CTVA) posted earnings for the fiscal first quarter of 2022. The company registered an EPS of $0.97 and outperformed market consensus by $0.16. Corteva, Inc. (NYSE:CTVA) generated revenues of $4.60 billion, 10.12% year over year, beating estimates by $135.82 million. As of June 2, the stock has gained 37.10% over the past twelve months.

This June, Barclays analyst Benjamin Theurer initiated coverage of Corteva, Inc. (NYSE:CTVA) with an Overweight rating and a $71 price target.

By the end of the first quarter of 2022, 39 hedge funds held stakes in Corteva, Inc. (NYSE:CTVA). The total value of these stakes came in at $1.35 billion, of which $344.66 million is attributed to Starboard Value. This is compared to 42 hedge funds in the previous quarter with stakes of $1.33 billion.

Aristotle Capital Management recently published its “Aristotle Capital Management Value Equity Fund” first-quarter 2022 investor letter in which it mentioned Corteva, Inc. (NYSE:CTVA). Here is what the firm had to say:

Corteva Agriscience, one of the world’s largest seed and crop protection companies, was a primary contributor for the quarter. Due to its respected brand and the value-added benefits of its patented seeds and crop protection solutions for farmers, Corteva has been able to more than offset input cost inflation with sustainable price increases. In addition, the company’s ongoing mix shift to higher-margin, premium products, a catalyst we previously identified, is aiding both sales and profit growth. Shares were likely also buoyed by the rise in crop prices. Market participants, perhaps eager to chase short-term trends, poured into the sector. At Aristotle Capital, we look past such gyrations and, as long-term investors, do not attempt to predict short-term changes in commodity prices. We remain excited about what we view to be high-quality characteristics and fundamental improvements that permeate Corteva’s business, not the least of which include its pricing power.”

7. ON Semiconductor Corporation (NASDAQ:ON)

Starboard Value’s Stake Value: $414,333,000

Percentage of Starboard Value’s 13F Portfolio: 5.49%

Number of Hedge Fund Holders: 48

ON Semiconductor Corporation (NASDAQ:ON) provides intelligent sensing and power solutions worldwide. Its intelligent power technologies have applications in the electric vehicle industry, fast-charging systems, solar energy systems, industrial power, and storage systems. As of the first quarter of 2022, Starboard Value owns more than 5.99 million shares of the company which brings its stakes to $414.33 million. The investment represents 5.49% of Starboard Value’s 13F portfolio.

This May, ON Semiconductor Corporation (NASDAQ:ON) released market-beating earnings for the fiscal first quarter of 2022. The company reported earnings per share of $1.22 and beat EPS estimates by $0.17. ON Semiconductor Corporation (NASDAQ:ON) generated revenues of $1.95 billion, up 31.27% year over year, exceeding revenue expectations by $38.40 million.

On May 11, Wells Fargo analyst Gary Mobley raised his price target on ON Semiconductor Corporation (NASDAQ:ON) to $65 from $58 and upgraded the stock to Overweight from Equal Weight.

At the end of Q1 2022, 48 hedge funds were bullish on ON Semiconductor Corporation (NASDAQ:ON) with stakes worth $1.31 billion. This is compared to 47 positions in the fourth quarter of 2021 with stakes worth $1.60 billion.

Artisan Partners, a high value-added investment management firm, mentioned several companies in its ‘Artisan Mid Cap Fund’ fourth-quarter 2021 investor letter, one of which was ON Semiconductor Corporation (NASDAQ:ON). Here is what the firm said:

ON Semiconductor is a global supplier of advanced semiconductors for sophisticated electronics applications within the automotive, industrial, communications, consumer and computing end-product markets. The company operates across three segments: power solutions, advanced solutions and intelligent sensing. A new management team, which took over toward the end of 2020, is working to dramatically improve the company’s performance by rightsizing its manufacturing footprint, exiting more commoditized products and investing in several compelling growth opportunities. When the dust has settled, we expect the portfolio to be more focused on the auto and industrial segments. As auto OEMs incorporate more automated safety technology and car fleets transition from internal combustion engines to battery electric vehicles, ON’s image sensors for cars and silicon carbide inverters— which extend EV battery efficiency—will be in high demand. This mix shift should drive ON’s margins higher over time. With shares trading at an attractive valuation, we initiated a GardenSM position.”

6. Humana Inc. (NYSE:HUM)

Starboard Value’s Stake Value: $421,332,000

Percentage of Starboard Value’s 13F Portfolio: 5.58%

Number of Hedge Fund Holders: 66

Humana Inc. (NYSE:HUM) operates as a health and well-being company in the United States through three primary business segments: Retail, Group and Specialty, and Healthcare Services. On April 27, Humana Inc. (NYSE:HUM) posted earnings for the fiscal first quarter of 2022. The company reported an EPS of $8.04, beating estimates by $1.24. Humana Inc. (NYSE:HUM) reported quarterly revenues of $23.97 billion, up 15.98% year over year, and outperformed revenue estimates by $436.15 million. Moreover, the stock’s trailing-twelve-month returns are up 4.39% as of June 2.

This May, Bernstein analyst Lance Wilkes resumed coverage of Humana Inc. (NYSE:HUM) with a Market Perform rating and a price target of $506, up from $480.

Humana Inc. (NYSE:HUM) is a new buy of Starboard Value and is also among the fund’s top 10 holdings. As of March 31, Starboard Value’s stake in the company is valued at $421.33 million, which covers 5.58% of its investment portfolio.

At the close of the first quarter of 2022, 66 hedge funds held stakes in Humana Inc. (NYSE:HUM) worth $3.11 billion. This is compared to 66 hedge funds in the previous quarter with stakes worth $3.87 billion.

Jeff Smith is bullish on Humana Inc. (NYSE:HUM) and the stock is ranked among his fund’s top 13F holdings. Other companies that Jeff Smith’s Starboard Partners is heavily invested in include AECOM (NYSE:ACM), Huntsman Corporation (NYSE:HUN), and GoDaddy Inc. (NYSE:GDDY).

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Disclose. None. Activist Investor Jeff Smith’s 2022 Portfolio: Top 10 Stock Picks is originally published on Insider Monkey.