Jeffrey Smith, CEO and CIO of activist hedge fund firm Starboard Value, highlighted pharmaceutical company Perrigo and internet holding company Altaba as his top stock picks during Delivering Alpha conference, saying the former is undervalued and the latter presents a promising way to play potential corporate tax reform.
Smith spent most of his talk discussing Perrigo, in which Starboard disclosed taking a 4.6 percent stake last September, now 6.7 percent. Shares for the stock, which Smith called his best investment idea, jumped by more than 5 percent at mid-day on Tuesday.
The company has three business lines: a consumer segment making store-brand versions of over-the-counter medications, an international segment of that same business, and a generic pharmaceutical business. Smith said the U.S. store-brand business has consistent and defensible growth, particularly in e-commerce, pointing out that in a search for Tylenol on Amazon.com, five of the top six search results are products made by Perrigo.
He added that the company is conducting a strategic review of the generics business, which could entail a sale, partnership, or spinoff, among other options, and is also conducting a CEO search.
Smith also said that the companys international consumer segment is making progress in improving its margins.
We believe these initiatives will close the valuation gap between Perrigo and its peers while also creating value, he said.
Smith also touted Altaba, the company formerly known as Yahoo!, calling it one of the most interesting ways to have an uncorrelated opportunity to invest in corporate tax reform. Between its Yahoo! Japan and Alibaba businesses, the company has $82 billion in value but trades at a nearly 34 percent discount to pretax value. Smith asserted that if tax reform actually happens, that discount has to go down.
When asked about his firms decision to dump its stake in Macys an investment Smith announced to much fanfare at the Delivering Alpha conference in July 2015 Smith asserted that while he thinks the company still has value even beyond its real-estate holdings, trying to fix Macys in the public markets is too difficult.