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Riding the Coattails of Activist Investors is a Profitable Strategy

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February 03, 2013 – Comments (6) | RELATED TICKERS: QEP , AGU , ROC

 

I was reading a great article on JANA Partners this afternoon and I came across an amazing statistic that reinforces why I keep such a close eye on the activist investor's moves. According to the article, since 2006 the average return for a stock in which JANA had filed a 13D has been 65% versus a return of only 10% in the S&P 500 over the same period. Wow, now that's the sort of outperformance that I'm looking for.

For anyone who's interested, companies that JANA currently has an activist position in include:

Rockwood Holdings (ROC)



I personally own ROC in both CAPS and in real life. The thesis behind the investment is that the company's strong core specialty chemical business has benefitted from an upturn in the economy, providing it with a ton of money that it can return to shareholders after a recent acquisition that it had earmarked the funds for fell through. Add to this the fact that the company is in the process of spinning off its terrible Titanium Dioxide business, enabling its stock to trade at a higher multiple going forward.

Agrium (AGU)

 

I have been aware of the company's position in Agrium for quite some time. AGU's management has been very reluctant to work with JANA and its efforts to get it to spinoff it's retail business. Despite this fierce battle with the company's management, Agrium's stock has done extremely well as secular tailwinds in the fertilizer segment keep propelling it higher. I personally have enough exposure to fertilizer through my investment in UAN, so I am not along for the rode on this one.

QEP Resources (QEP)



I just became aware of JANA's involvement in QEP a few days ago. From what I have been able to gather about the situation thus far, after establishing a position in the company in November and December JANA convinced QEP to spin off its midstream assets into an MLP. You know that I'm a big fan of this sort of move. I am still looking into this one but it looks pretty good so far. I have gone long QEP in CAPS and may initiate a real money position in it at some point in the future.

Well, I'm off to a Super Bowl party.  As a Jets fan, I have no rooting interest but I have decided to root for the 49ers because Colin Kaepernick seems like a much more likeable person than Baltimore's Ray Lewis.  Kaepernick is absolutely amazing to watch.  

Thanks for reading everyone.  Enjoy the big game!

Deej 

6 Comments – Post Your Own

#1) On February 04, 2013 at 9:05 AM, MKArch (99.76) wrote:

Deej,

 I saw an M* video with a fund manager touting opportunities in Europe right now. One in particular you might be interested in (assuming you haven't already sniffed it out) is Vivendi. There is an activist investor named Vincent Bollore(sp?) who owns a 5% stake and I think he's on their board now as well. He's supposed to have a very good record and is looking to rationalize the company.

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#2) On February 04, 2013 at 4:30 PM, TMFDeej (99.25) wrote:

Hey MKarch.  How have you been?  I hope that you had a good weekend.  What a game last night, huh?  I thought that the Niners were going to pull it off.  I have no idea why they didn't let Kaepernick roll out and try to run it in from the five at the end of the game.

Thanks for the heads up on Vivendi.  I know that I've played Viventi in the past here in CAPS, so I just looked it up and I was long it here from April through December 31 of last year, riding the coattails of Seth Klarman.  It rose 42% vs. a 1% gain in the S&P.  I think that I closed it out thinking that all of the easy gains had been squeezed out.  It sounds like some smart peoplt think that there's still more room for it to rise.  I'll have to take another look at it.

Deej

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#3) On February 05, 2013 at 9:56 AM, MKArch (99.76) wrote:

Hi Deej,

I was actually thinking it would have been better for the Ravens to have let the Niner player (can't remember who) score instead of tackling him on the five yard line so that they would get the ball back with a couple of minutes to take the lead back. I didn't think there was any way they could prevent the niners from scoring a T.D. As an Iggles fan I didn't have a strong rooting interest but was pulling for the Ravens because of the Flacco South Jersey connection and Baltimore being a fellow east coast team. That said I think the niners got robbed on the non pass interference call.

I don't know what your take will be after looking into Vivendi but the argument the fund manager made was the stock has basically gone no where for a decade because the company is too unwieldy but he sees the crisis in Europe as a catalyst for companies there to streamline themselves. He mentioned the ability to deal better with employee costs in this environment as E.U. governments are more interested in protecting businesses than jobs right now as something going on below the surface right now. In regard to Vivendi I think the fund manager believes Bollore may push to spin off less profitable businesses and focus the company on the best and most synergistic opportunities. I thought it was worth a shot in CAPS anyway.

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#4) On February 06, 2013 at 9:23 AM, MKArch (99.76) wrote:

Deej,

The interview popped back up on M*'s home page so I posted a link below.

http://www.morningstar.com/cover/videocenter.aspx?id=581834

Mike

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#5) On February 06, 2013 at 3:31 PM, TMFDeej (99.25) wrote:

Thanks Mike.  I'll definitely check it out later.

Deej

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#6) On February 06, 2013 at 3:36 PM, TMFBlacknGold (98.62) wrote:

Wow that's crazy. Another example is Icahn and CVR Energy, which you've posted about before. He knew refiners were going to blow the top off of 2012 and that $28-$30 per share was a steal. Looks like he was right.

--Maxxwell 

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