Between dumping half his stake of Netflix (NFLX) and pushing even harder for an Apple (AAPL) stock buyback, activist investor Carl Icahn seems to be stealing all the headlines these days.
But former General Electric (GE) CEO Jack Welch made some pointed comments on CNBC yesterday about the lack of positive impact from activists in stocks like Apple and flailing department store JCPenney (JCP). Welch seems to think that activists actually do more harm than good by causing executives to lose focus on running the business.
He also added that activist investors tend to have a greater positive influence on sleepy companies. For sleepy picks, they have to be right over the long term, instead of simply profiting from short-term stock gyrations caused by their own activities.
Considering I’ve already been focusing on activists who bet on small banks — the ultimate sleepy stocks — I couldn’t agree with Welch more.
One prime example of a stellar small-bank activist is Joseph Stilwell. He has been investing in small banks and thrift for a long time and has forced change and sales at many institutions where he felt management was not serving investors’ interests.
Stilwell is not shy about taking an activist position. In addition to investing in small banks he considers undervalued, Stilwell and his funds have reported position of more than 5% in 48 other publicly traded companies. Many of these ended up being acquired by larger banks as a result of his activist approach.
This quiet activist investor has been busy of late as well. Many community bank stocks are still cheap in the aftermath of the credit crisis and real estate collapse. In his latest filing, he revealed that he had purchased additional shares of Northeast Community Bancorp (NECB) and now owns 9.9% of the bank.
Stilwell currently has a lawsuit with the bank demanding the shareholder lists so he may approach them directly in an effort to force a sale of the bank. His statement in the filing is pretty blunt saying:
“Our purpose in acquiring shares of Common Stock of the Issuer is to profit from the appreciation in the market price of the shares of Common Stock by asserting shareholder rights. We do not believe the value of the Issuer’s assets is adequately reflected in the current market price of the Issuer’s Common Stock.”
NECB stock is indeed cheap, trading at 80% of book value, and is attractive as long-term investment. Should the bank be sold at a premium to book in the short to intermediate term, that would be a bonus for investors buying with a longer view.
While many big-name activists seek out attention, quiet activists in sleepy stocks seem to be making the most money. Investors would be wise to follow their filings and ride their coattails to profits in community banks stocks.
As of this writing, Tim Melvin was long NECB.