In this article, we will look at activist investor Jeff Smith’s top 5 stock picks for 2022. If you want to read about his investment philosophy and his hedge fund’s performance, you can go to Activist Investor Jeff Smith’s 2022 Portfolio: Top 10 Stock Picks.
5. NortonLifeLock Inc. (NASDAQ:NLOK)
Starboard Value’s Stake Value: $443,002,000
Percentage of Starboard Value’s 13F Portfolio: 5.87%
Number of Hedge Fund Holders: 42
NortonLifeLock Inc. (NASDAQ:NLOK) operates as a cybersecurity firm that provides cyber safety solutions for consumers in the United States, Canada, Latin America, Europe, the Middle East, Africa, the Asia Pacific, and Japan. This May, the company reported earnings for the fiscal fourth quarter of 2022. NortonLifeLock Inc. (NASDAQ:NLOK) registered an EPS of $0.46, outperforming EPS estimates by $0.01. The company’s revenues came in at $716 million, up 6.55% year over year, beating expectations by $6.38 million. Moreover, as of June 2, the stock has gained 2.41% over the past six months and has a forward PE ratio of 13.46, along with a dividend yield of 2.05%.
On May 9, Baird analyst Jonathan Ruykhaver trimmed his price target on NortonLifeLock Inc. (NASDAQ:NLOK) to $28 from $31 and reiterated an Outperform rating on the shares.
By the end of the first quarter of 2022, 42 hedge funds were long NortonLifeLock Inc. (NASDAQ:NLOK) with stakes worth $1.21 billion. This is compared to 36 hedge funds in the prior quarter with stakes of $1.37 billion.
ClearBridge Investments named several companies in its “All Cap Value Strategy” fourth-quarter 2021 investor letter, one of which was NortonLifeLock Inc. (NASDAQ:NLOK). Here is what experts at ClearBridge had to say about the stock:
“However, not every example has a cyclical dynamic. Consumer cybersecurity company NortonLifeLock undoubtedly benefited from the COVID-19 pandemic lockdowns as sales of personal computers and time spent online skyrocketed, as did subscriptions to the company’s security products. The market has lumped Norton into the “COVID winners” bucket and embedded a substantial reduction in subscriptions going forward as the company laps its strong results from the depths of the pandemic. While these concerns are reasonable for many within the COVID winner cohort, it is not the case for Norton. Company-specific improvements in marketing and product development have been just as powerful tailwinds to subscriber growth and would have continued to carry the company’s growth through the most difficult comparisons from 2020 even without the pandemic effect. The market’s concern about tailwinds turning to headwinds is overwrought, and contrary to the decline currently embedded in the stock price, we are confident that Norton’s earnings will continue to compound. Similar to EQT and OneMain, NortonLifeLock has been actively putting its ample cash flow generation to work to crystalize upside for shareholders. In addition to strong dividends and share repurchase activity, last year Norton announced the acquisition of “freemium” competitor Avast. Already attractive from a pricing standpoint, the acquisition creates the potential to generate immense cost and revenue synergies as well as providing Norton a strong foothold outside the North American market and a broader customer acquisition funnel. Once the transaction closes in 2022, Norton will have growing free cash flow generation of $1.5 billion and a clear path to an EPS of $5, yet a resulting valuation of just 5x earnings power. Given the high-single-digit revenue growth that Avast brings to the table, we believe the continuation of a valuation this depressed for Norton is highly unlikely.”
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