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.
- In one of the craziest cases of activist investing, Ackman and Icahn squared off over nutritional-supplement maker Herbalife Ltd. (NYSE: HLF) earlier this year. Ackman shorted the stock while Icahn increased his stake. The fight sparked a lot of short-term volatility, but at this point Icahn is winning big time – HLF is up a whopping 75% since the battle began in February.
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…
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.