The Capitalist Investor - Episode 77

What is activist investing? When an activist investor buys into a company, is it good or bad? In this episode of The Capitalist Investor, we’ll share what an activist investor is and what they do. We’re also going to dissect 13 different stocks that activist investors recently bought into—and whether or not we think that’s a good move. Don’t miss it!

Outline of This Episode

  • [1:23] What is activist investing?
  • [4:05] #1: First Energy stock
  • [5:56] #2: Intel
  • [8:18] #3: Kohls
  • [11:58] #4: ExxonMobil
  • [13:57] #5: Bausch Health
  • [15:12] #6: Dannon Yogurt
  • [16:50] #7: Elanco Animal Health
  • [18:41] #8: Forward Air
  • [20:21] #9: Delek
  • [21:35] #10: Prudential
  • [23:36] #11: ACI Worldwide
  • [24:56] #12: Xerox
  • 27:09] #13: Cubic

What is activist investing?

An activist investor tries to get a board seat by buying enough shares in a company. Why? If they notice some issue with a company, they flex their muscles and make sure their solution is implemented. It’s not too different from a private equity firm purchasing a distressed company. They look for good ideas and revenue streams and buy in to fix them.

Activist investors make sure a company is on the up and up. Activist investors buying into a company can be a buying signal for other people. We bought Cloudera, and then Carl Icahn bought into it as an activist investor. We felt more comfortable owning that stock after that.

The 13 Stocks Activist Investors Are Buying

We’re going to talk about a list of 13 stocks that activist investors are buying. To find out if we think these purchases are a thumbs-up or a thumbs-down, you’ll have to give it a listen!

  1. FirstEnergy: First Energy hasn’t done well recently, and then Carl Icahn bought 3% of the company. He obtained two seats on the board as well. Now the stock is up 20.66% year-to-date. Energy stocks are just boring stocks. But they are a safe purchase for clients who are 60+. They are defensive stocks that come in handy should the market correct right before you retire.
  2. Intel: Intel is on the verge of extinction because they’re being decimated by AMD. They’re the perfect opportunity for an activist to spruce up. Dan Loeb bought in. But will they ever catch up? We aren’t sure.
  3. Kohls: Kohls started doing Amazon returns. What a smart concept to get people coming into the store. When Amazon is killing you, why not use Amazon to get people into your store? It gave them an advantage over other stores. They’re doing their best to innovate and they’re up 219% over the last year. We wouldn’t be buying into them at this level. Are they doing better because of activist investors? Maybe so.
  4. ExxonMobil: Oil and gas are tough, but they have more than 135 activist investors buying in. Most everyone owns a portion of this stock. They took a pounding heading into 2021. It’s volatile, and the activist investors are ready to change their business model (i.e. getting away from fossil fuels). That’s gonna be difficult to execute. But because they’re trying to get out in front and move to green energy, it’s a good idea. They’re up 42% year-to-date.
  5. Bausch Health: Carl Icahn got in and got two new executives on the board. He unveiled a 7.8% stake in Bausch. They’re spinning off their eyecare business. They’re already up 32%. They’re a good example of why you can buy in just based on the activist investor being involved.
  6. Dannon Yogurt: Dannon is a classic turnaround story. They’re a name-brand that everyone recognizes that started losing money. Artisan Partners and Blue Bell Capital partners started selling pieces of Dannon, which turned the stock around. The problem? They’re still trading over the counter. Could getting it up-listed be a catalyst? It could be an opportunity.
  7. Elanco Animal Health: Vaccines, dewormers, and flea-protection products for animals (we own Zoetis). An activist investor (Sachem) just invested $1.2 billion for 3 board seats. A second activist investor, Starboard, bought in as well. We like this space, but don’t know enough about Elanco. We do, however, like the space.
  8. Forward Air: They offer expedited freight delivery services. They’ve made some poor acquisitions that overly diversified the company. Ancora Holdings holds 6.3% and sought 4 board seats. They’re selling off the ancillary businesses.
  9. Delek: Carl Icahn bought 15% of the shares in 2020. They own 4 oil refineries in the Southwest. The CEO made 81 million dollars over 8 years at the company. They’re up 58% year-to-date. It’s a tough space, with little room to run up.
  10. Prudential: How can you screw up insurance? The activist investor is recommending they separate their fast-growing Asian unit from the US business. It’s strictly a geographic turnaround play. Neither of us are fans.
  11. ACI Worldwide: They sell software for electronic payments. Is it interesting? Not really. Crypto will eventually cut this stuff out. It seems very old-school and the world is headed in a different direction.
  12. Xerox: We haven’t thought of Xerox for a long, long time. Carl Icahn jumped in. It’s something he knows and understands. Xerox is reorganizing into three businesses: software, financing, and innovation (each with its own management team). It’s a name that everyone knows, but what are you gonna do with it? We only think of copiers in a society that’s moving paperless.
  13. Cubic: Elliot Management bought a 15% stake and wanted to buy the company outright, which was rejected. We don’t really see subway collection systems as a growth story. There is an opportunity to improve the tech in the space, but is New York even up and running?

Get all the details by listening to this episode!

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Show Notes by

Keep Listening to The Capitalist Investor:
Episode 15:
Spending Strategies in a Bear Market, Ep #15
Episode 31:
Handicapping the 2020 Election, Ep #31
Episode 47:
11 Investments in Your Home That Pay Off, Ep #47
Episode 63:
Jeff Bezos and Amazon: Past, Present, and Future Ep #63
Episode 79:
7 Ways Biden Plans to Tax American Families (Part II), Ep #79
Episode 95:
5 Beaten Down Stocks to Buy on the Dip, Ep #95
Episode 111:
Special Episode – Talking Energy with Daniel Turner, Ep. #111
Episode 127:
Retail Earnings Tank & What The Heck is Greenflation? Ep. #127