It can be extremely difficult to buy a stock that has been under-performing the market. However, three big-name activist investors believe that the huge selloffs in CONSOL Energy (CNX), Valeant Pharmaceuticals (VRX) and Hertz Global Holdings (HTZ) are excellent buying opportunities for patient investors.
Let’s take a look at just which bigwigs are buying, and why:
CONSOL Energy (CNX)
If you’re into to buying the dip, dips don’t come much bigger than CNX’s. In fact, CNX stock needed a late-year rally to narrowly avoid being the worst-performing stock in the entire S&P 500 last year, finishing the year down an incredible 76.5%.
In mid-2015, CNX was trading above $45 per share, so you can imagine that activist hedge fund manager David Einhorn probably thought he was buying on the dip when he first started accumulating shares of the stock at around $30 a pop in early 2016. Instead, CNX continued is precipitous fall, breaking below $5 per share earlier this year. In a presentation back in November, Einhorn defended his investment as a simple case of bad timing.
Instead of panicking as the stock declined, Einhorn stood by his analysis of the coal and natural gas company, which values the stock at more than $35 per share. Einhorn continued to buy stock during the fall from $30 down into the single-digits. CNX recently spiked as high as $10.50 on its highest volume day in more than five years, but investors will have to wait until Einhorn’s next quarterly disclosure to see if he played a role in the surge.
Valeant (VRX)
If you think David Einhorn is brave for sticking to his guns on CNX, Bill Ackman takes commitment to a whole different level with his stake in Valeant shares. VRX has been facing nuclear-level heat in the past six months, and the stock is now down 72% during that time. VRX’s troubles started back in the fall of 2015 when the company faced harsh scrutiny for its seemingly arbitrary 66% price hike on prescription drugs. VRX has also apparently made some powerful enemies, recently drawing specific criticism from Democratic presidential front-runner Hillary Clinton for its alleged price-gouging.
However, things went from bad to worse last week when VRX disclosed that the company is currently under investigation by the SEC for its relationship with pharmacy Philidor RX Services. The SEC has said it is primarily concerned with whether or not VRX used Philidor to mislead investors about drug inventory levels.
As of Pershing Square’s most recent disclosures, Ackman is still buying VRX. In fact, in Q4 of 2015, Ackman upped his stake in the controversial company to 9%. The new developments will test his resolve even further. Following VRX’s most recent selloff on news of the SEC probe, Ackman appeared on CNBC and reiterated his confidence in the stock.
Hertz Global Holdings (HTZ)
Ackman is not the only activist investor with a large stake in a struggling company that has faced accounting issues. Ackman’s on-again/off-again activist nemesis Carl Icahn currently holds about 63.7 million shares of HTZ, which is down 53.7% in the last year. Last year, Hertz disclosed that it needed to re-state three years of company earnings to fix accounting errors dating back to 2011.
The financial problems and falling stock price didn’t deter Icahn. When asked about HTZ on CNBC last year, he said simply, “I don’t buy stocks to lose money.” In fact, not only is Icahn sticking to his call on HTZ, his latest filings indicate that he purchased 11.8 million more shares last quarter.
As of this writing, Wayne Duggan was long CNX.
