The most recent quarter was full of battleground stocks, with the help of famous hedge fund managers. For some of the most hotly contested stocks, the war rages on.
A number of hedge funds reported their holdings as of the end of the fourth quarter in 13F filings last week. There were varying investment themes across industries, and for the most part the smart money funds bought and sold stocks in their key sectors on the down low — not revealing their positions until last week.
For some activist hedge fund investors, though, their strategies were known early on. This turned some stocks into a battlefield for investors, company management teams, and sell-side analysts. Other stocks became battlefields as management judgment and oversight of accounting requirements came into question.
Below we review some of the stocks that faced the biggest battles. For some, those fights are far from over, so stay tuned.
Company Description: Maker of Emerald nuts, Kettle chips, and Pop Secret popcorn
Stock Price Performance in 4Q/YTD: -56 percent / -25 percent
Long Case: Diamond Foods is finally moving past the accounting scandal — it recently announced it would be replacing the CEO and CFO after an internal investigation that found improper accounting for payments to walnut growers.
Additionally, the company reached a deal with Procter & Gamble to call off the deal for Diamond to buy the Pringles brand. This was a positive because many thought Diamond would have to pay a break-up fee as the decline in stock price made financing the deal difficult.
Buyers: Wellington Management, TIAA Cref, State Teachers Retirement System of Ohio
Short Case: The accounting scandal has caused skepticism regarding the financial reporting and real earnings for the company. Hiring a new CEO and CFO also adds risk. Finally, the acquisition of Pringles would have made Diamond the second-largest snack maker in the country and with that deal off the table growth will have to be organic.
Sellers: Del Mar Asset Management, Bamco, Artisan Partners, Lord Abbett & Co.
Short Interest: 50 percent of float
Green Mountain Coffee Roasters
Company Description: Maker of Green Mountain coffee and the Keurig coffee brewer
Stock Price Performance in 4Q/YTD: -49 percent / +54 percent
Long Case: Green Mountain Coffee Roasters reported a blow-out quarter, with sales doubling due to strength in sales of Keurig brewing machines and K-cups, a product used in its single-serve coffee machines, signaling good momentum. The company also introduced its next-generation Keurig brewing machine, the Keurig Vue, which is expected to help drive growth.
Buyers: Capital Research Global Investors, Fidelity, Ameriprise, Lone Pine Capital
Short Case: David Einhorn of hedge fund Greenlight Capital announced his short position in the company in October, which caused the stock to plummet. His concerns included the company’s accounting practices, its relationship with key vendor M. Block and Sons, and the imminent expiration of the K-cup patent. The Securities and Exchange Commission is currently investigating the financial strength of the company.
Sellers: Jennison Associates, Marsico Capital, Winslow Capital, T. Rowe Price.
Short Interest: 19 percent of float
Company Description: Internet search service
Stock Price Performance in 4Q/YTD: +19 percent / -6 percent
Long Case: Yahoo! is backed by activist investor Daniel Loeb, who runs hedge fund Third Point Capital. Since getting involved in the troubled company prior CEO Carol Bartz was fired, co-founder Jerry Yang resigned, and the departure of four board members, including Chairman Roy Bostock. New CEO Scott Thompson, a former eBay executive, was appointed in January, and Third Point nominated four directors to the board including Loeb. With a strong determination to unlock value, Loeb presents a persuasive reason to be long this stock.
Buyers: Third Point Capital, JPMorganChase, Alden Global Capital, Calamos Advisors, York Capital Management
Short Case: All that management shake-up can lead to uncertainty, which is risky. Competition for advertising dollars has hurt the company’s performance, with Facebook taking share. One catalyst for the stock was the sale of Asia assets, including Alibaba and Yahoo Japan, which fell through. Also, the likelihood of a sale of the whole company to a private equity firm is now less likely.
Sellers: Capital Research Global Investors, Invesco, Ivory Asset Management, Janus Capital
Short Interest: 3 percent of float
Company Description: Internet subscription service for streaming TV shows and movies
Stock Price Performance in 4Q/YTD: -39 percent / +75 percent
Long Case: Netflix has rebounded from a year the company would like to forget. The fourth quarter was better than most had expected, as the company gained 600,000 subscribers. That was good news, given that it lost 800,000 after hiking prices last summer. Takeover rumors also attract some investors to this stock.
Buyers: T. Rowe Price, Davis Selected Advisors, Neuberger Berman
Short Case: Competition is a big concern. In recent weeks, Amazon inked a licensing deal with Viacom to stream around 15,000 titles. Amazon is reportedly considering carving that offering out of its Prime services as a standalone, subscription-based business, posing a direct threat to Netflix. Verizon Communications and Coinstar, which operates Redbox DVD rentals, also formed a joint venture to sell video services that would compete with Netflix.
Sellers: JAT Capital, Renaissance Technologies, Ameriprise Financial, Wellington Management
Short Interest: 20 percent of float
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