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Cheap with a Catalyst...Activist Investors



December 26, 2012 – Comments (1)

"Cheap with a catalyst"  I didn't coin that phrase, but it certainly suits my investing style to a T.  It's a great thing to find an undervalued stock, but cheap stocks can remain so for a long time absent of some sort of catalyst that has the potential to cause them to rise. While one can question the economic value of activist investors and their efforts to make companies split up, sell divisions or return money to shareholders in the form of buybacks or dividends on really can't question the success that some of them have had at making stocks rise in value.

I came across an interesting Financial Times article about activist investors the other day. Following in the footsteps of activist investors as they unlock shareholder value is one of my favorite types of special situations.

From the article:

Investment funds that seek to profit by pushing for strategy shifts at companies or improvements in corporate governance have had a banner year, posting returns well ahead of the US equity market and their stock trading peers.

The growing status and firepower for activist investors points to more boardroom battles ahead for 2013, as big pension funds throw money and support behind the agitators.

Leading the pack in terms of performance this year are The Children’s Investment Fund, Corvex and Marcato Capital Management, with returns of around 25 per cent as of the end of November, according to investors.

I've already had my eye on Marcato, but I'm going to start taking a look at the moves that are being made by The Children’s Investment Fund and Corvex.

Other strong performers include Jana, the $2bn flagship fund run by Barry Rosenstein is up 21 per cent this year, which has persuaded several companies to split apart this year, and Cevian, the $7bn European activist fund up almost 21 per cent at the end of November according to investors.

I already closely follow JANA and have invested alongside them in the past.

It has been a mixed year for Relational Investors, run by Ralph Whitworth. The firm’s small- and mid-cap strategy, with almost $2bn under management, had returned over 26 per cent this year, according to investors. However the large-cap strategy, with twice the capital, is up only 6.9 per cent, hit by declines in the value of computer maker Hewlett Packard, where Mr Whitworth is on the board.

I also closely follow Relational Investors and have invested in companies that they are pushing for change in real life as well.

Bill Ackman’s Pershing Square, was up only 6 per cent at the end of November, investors said. However, they said it was likely to have had a strong December as Mr Ackman unveiled a high-profile position betting on a fall in the share price in Herbalife, the nutritional supplement direct. Shares in the company fell nearly 38 per cent last week following Mr Ackman’s attack...

The hedge fund of Trian Partners, run by Nelson Peltz, Edward Garden and Peter May, was up 4 per cent for the year at the end of November, according to investors.

Everyone knows about Bill Ackman. I always find his research and ideas interesting, while I don't necessarily always invest in his ideas I have in the past. What I like about Ackman is that he isn't afraid to talk about his investments. While some people seem to frown about investors talking their books, I personally love it. Why wouldn't I want a super investor to tell me why they are invested in something?

Another activist that I like is Starboard Value. I'm trying to think if there's any others that I like off of the top of my head. I have set up Google Alerts for all of them to keep tabs on their activity and plan to do so for Children’s Investment Fund and Corvex today.

Boom year for activist investors

As always, thanks for reading everybody.  Is there any activists that anyone out there likes that I haven't mentioned? I'd love to hear about them.

Happy Holidays.  I hope that everyone here in CAPS has a blessed 2013.


1 Comments – Post Your Own

#1) On December 26, 2012 at 7:20 PM, portefeuille (98.91) wrote:

Not an activist, nor do I like to talk about my "investment ideas", but my fund's 2012 record (≈ 87% YTD) is certainly much better than that of all of the above ;)

It is pure-play biopharma now and I think you should have no problem extracting some decent investment ideas ... :)

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