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Here's What These Top Activist Investors Do to Stocks You Own

Sooner or later, an activist investor will target a stock you own.

Activist investors have been more active than ever before over the past year and increasingly have gone after some of the most commonly held stocks in Corporate America, including Apple Inc. (Nasdaq: AAPL), The Procter & Gamble Co. (NYSE: PG), and J.C. Penney Co. Inc. (NYSE: JCP).

"No company, no matter how large, is beyond the reach of activists," Claudia Allen, a partner and head of the corporate governance practice at Katten Muchin Rosenman, told USA Today. "We are seeing some of the iconic names in Corporate America confronted by activists."

By now most investors realize what this scenario can mean to a company: Stocks can spike (or plunge), and the heads of CEOs may roll.

Just this year, top activist investors have made a lot of waves in the market. A few of the more prominent examples:

  • A series of mid-August tweets (the first on Aug. 13) from Carl Icahn, perhaps the best-known activist investor of them all, has helped push Apple stock up 5%. Icahn is urging Apple CEO Tim Cook to step up its stock buyback program.
  • The dramatic announcement that CEO Steve Ballmer would be surrendering the reins to Microsoft Corp. (Nasdaq: MSFT) within 12 months was driven in large part by efforts of hedge fund ValueAct. The activist shareholder used its large stake in the company to get a seat on the board. Among the items on ValueAct's agenda was a change at the top. MSFT shot up 7% on the day of the announcement.
  • Activist investor Bill Ackman finally threw in the towel this week on his three-year attempt to revive the fortunes of troubled retailer J.C. Penney. He sold his entire 18% stake, 39 million shares, to Citigroup on Aug. 26 for a loss of some $500 million. The episode has helped erase 50% of the value of Penney stock, although the announcement that Ackman had bailed out did give JCP a 2.5% boost.
  • Dan Loeb had much better luck than Ackman with Yahoo! Inc. (Nasdaq: YHOO). After building up a 5% stake over 2011 and 2012, Loeb pushed for the ouster of CEO Scott Thomson in favor of Marissa Mayer and persuaded the company to sell 7% of its stake in Chinese Internet company Alibaba. Yahoo bought back Loeb's shares in July, but was able to pocket a profit of nearly 80% – as were any YHOO shareholders who were along for the ride.

Clearly, it's a good idea to pay attention to what these shareholders are doing. If you know what to look for, and understand what activist investors do to stocks, you can profit from this growing trend…

Join the conversation. Click here to jump to comments…

  1. Jeff Pluim | September 3, 2013

    Carl Icahn has caused the price of Netflix to soar. But if you know anything about financial statement analysis, this is a blunder for any retail investors who currently hold stock in NFLX. The company is so overpriced, it must be some kind of record. Its price/earnings ratio is north of 350. That is outragious for a company that has a negative value on its balance sheet of over minus $700 million. And if you know anything about about the indistry, you will know that all of Netflix movies are available for free on the internet. It is only a matter of time until this stock crashes like it did in 2011 when it lost 50% of its value. If this stock goes to $300 I'm shorting it and expect to make at least 4 or 5 times my investment.

  2. 000063644270 | November 18, 2013

    Carl Icahn has done very well with Dell, HLF and AAPL for 2013. One company may have a negative effect on earnings would be CVI, CVRR and UAN. Even though a lot of money has gone into these 3 separate companies, Mr. Icahn might as well as take ownership of these companies. They keep going down and their dividends continue to go down, cut.


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