Highly regarded value investor Starboard Value has around $5.2 billion in managed equities, so the amount held in these three stocks represents slightly more than 18% of its holdings. It's a significant figure and implies a high level of belief in infrastructure consultancy AECOM (ACM 0.52%), application software company Splunk (SPLK), and data center equipment company Vertiv (VRT -5.09%). Here's why all three are interesting.

Infrastructure is a relatively safe sector in 2023

Starboard's investments follow a common theme. In a nutshell, it's a variant of value investing whereby Starboard finds companies whose operational performance lags behind its peers. The principle is that the company has an opportunity, potentially abetted by Starboard's activism, to improve its performance in line with its peers. 

That's the playbook Starboard followed with AECOM, and it has paid off. Following a series of divestitures, AECOM refocused its business on infrastructure and reduced the regions and activities it operated in. 

The strategy worked, and AECOM's segment operating margin has expanded from 8.7% in 2018 to 14.2% in 2022. Moreover, the company's growing reputation in infrastructure helped it to win a record 50% of the projects it competed for. Furthermore, AECOM is winning more large contracts, with its share of wins above $25 million more than doubling in the last few years.

The need to invest in infrastructure and supply chains has become all too evident in recent years, and AECOM stands well-placed to benefit from it. 

Splunk is a turnaround play

Splunk gathers and analyzes data from digital systems used in a company's operations so it can better monitor its IT and identify security threats. Given the massive proliferation of digital data, and the confusing mass of information coming from it, it's essential that companies find ways to use that information to the benefit of their operations. That's where Splunk comes in. 

Returning to the value investing theme outlined above, Splunk has misstepped as it transitions its business from perpetual license sales to cloud-based subscription sales. The transition is a common theme in the software world, and it's characterized by an initial dip in revenue and cash flow as revenue/cash flow shifts from upfront payments to annual invoicing. 

However, it's also characterized by a rise in annual recurring revenue (ARR) as subscription licenses build. Unfortunately, Splunk has a recent history of missing guidance and lowering expectations for ARR. As a result, it's weighed on the stock in recent years. Still, Starboard believes CEO Gary Steele (appointed in March 2022) is capable of turning the business around and executing on the transition. It has a long way to go before fully restoring investor confidence. 

SPLK Chart

Data by YCharts

Vertiv is positioned in attractive end markets

The data center equipment company released its fourth-quarter 2022 earnings recently, and the market reaction was much better than the crash that greeted its fourth-quarter 2021 earnings. Back then, Vertiv significantly missed earnings estimates due to management failing to anticipate cost inflation and getting behind on raising prices. Consequently, management resolved to increase pricing to offset rising costs. When such things happen, investors are entitled to take a skeptical view on whether Vertiv can push the prices through. 

Fast-forward to recent results, and CEO Giordano Albertazzi was pleased to tell investors, "We were on plan as we realized $135 million of price in the fourth quarter, and we delivered $365 million for the full year. We executed on the commitment we made early last year."

Moreover, Vertiv believes it can grow sales by 15% in 2023, alongside an adjusted operating margin of 12% (compared to 7.7% in 2022), adjusted diluted earnings per share of $1.22, and free cash flow (FCF) of $300 million to $400 million. Those targets would put Vertiv on a forward price-to-earnings ratio of 13.2 times earnings, and price-to-FCF (midpoint of guidance) of 17 times FCF. That's cheap for a company on track to overcome its supply chain and pricing issues in 2023.