Activist investors don’t have the best reputation. Michael Douglas singlehandedly destroyed any idealized version we might’ve had about Wall Street movers and shakers with his portrayal of the cunning and crooked Gordon Gekko in 1987’s Wall Street. In his infamous monologue, Gekko defends his profession, saying:
“I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentlemen, that greed…for lack of a better word, is good.”
While I would contend that activist investors are indeed capable of destroying companies, I also think sometimes they can do great things for the companies they target and of course the shareholders of those beleaguered businesses. When a company gets to a certain level of hopelessness, incompetence or myopia, changes become necessary — and the solutions from within the company clearly haven’t been working.
This is the habitat of the activist investor: one in which not only he (i.e., the hedge fund) thrives, but his ecosystem (the company and its stakeholders) thrives as well.
Three names in the stock market today strike me as being in dire need of activist intervention: AVP, TWTR and GMCR.
3 Stocks That Need Activist Saviors: Avon Products (AVP)
There’s no two ways about it: Avon is in an ugly tailspin and it’s gonna take an awful lot of work to get AVP stock looking fit and fancy. Its “turnaround efforts” to date have amounted to nothing more than putting lipstick on a pig.
AVP stock is off 34% year-to-date and 57% in the last year. Although Avon had been growing revenues as recently as 2011, sales started falling in 2012, and things have only been getting worse from there. A brief look at the table below pretty well sums up Avon’s miserable situation:
The secular decline is something management hasn’t been able to fix. InvestorPlace‘s Joseph Enomoto lamented the sorry state of Avon in May:
“…there’s no excuse for the manner in which Avon Products chief executive Sherilyn S. McCoy has steered the once-prominent flagship. Since taking the helm in April 2012, AVP stock has tanked more than 66%.
Additionally, AVP’s failure to lift its representative base is a critical and fundamental vulnerability given the cosmetic company’s direct sale business model.”
You might recall that AVP stock was party to one of the year’s most bizarre intraday moves, when on May 14 the SEC’s Edgar database was infiltrated by a fake tender offer for AVP stock at $18.75 per share, almost three times the prior day’s closing price. Within 30 minutes, the AVP stock price roared more than 20%, then cratered again. Unfortunately, no one had swooped in to save the day.
That role can only be adopted in the real world by an activist investor — but I wouldn’t count on it.
3 Stocks That Need Activist Saviors: Twitter (TWTR)
Twitter might not seem like the most likely target for activism, but I wouldn’t rule it out entirely. With CEO Dick Costolo hastily vacating the top spot and yuppie caveman/co-founder Jack Dorsey emerging from hibernation to take the reins, the future of TWTR stock is uncertain at best.
Unlike Avon — which could hypothetically adopt a new sales model, play with margins, make big management changes, focus more on online selling, and so forth — Twitter’s only hope for an immediate turnaround is a buyout. Even though TWTR stock is down 12% in 11 months, it still trades at an absurd 52 times forward earnings, so there’s still room for the selloff to intensify.
I don’t need to know that my friends are also wondering how many big screen DeVito-Schwarzenneger movies have hit theaters. Naturally they’re curious about that, that’s why we’re friends.
What TWTR really needs is something that can boost engagement, grow its userbase, and monetize ads more effectively. In short, it needs an angel with a pocket full of cash and a couple board seats. If Carl Icahn can move in and trick GOOG into buying Twitter, I doubt shareholders would vote against it.
3 Stocks That Need Activist Saviors: Keurig Green Mountain (GMCR)
Oh, how the mighty have fallen. Keurig Green Mountain, maker of the famed K-Cup, is one of the great growth stocks of all-time. As recently as 2004, GMCR changed hands for a split-adjusted $1.50 a pop. By 2011, fueled by the cravings of caffeine addicts everywhere, the stock topped $107, only to plunge below the $20 level the proximate year.
Fast forward to 2014 and GMCR breaks $150 per share. Present day? Whaddaya know, GMCR is off more than 50% from 52-week highs, trading in the $70 to $75 range.
The stock market is supposed to be volatile, but this up-and-down roller coaster of a stock is criminally conflicted about what it’s worth. A few weeks ago, InvestorPlace‘s Lawrence Meyers noted the wild swings and dubbed it a once-hot stock now parading around as a value play. At the time, shares traded for $82. GMCR stock is off about 14% since he put his voodoo hex on shares, saying:
“Suckers are thinking that this is a great value play since the stock is off 45%. No way. As I wrote recently, the hype of Keurig Kold is just hype. The chart is a classic collapsing parabola — and it still sells at 23 times earnings even though EPS will decline this year. Hello value trap!”
That’s a nice way to put it. Keurig Kold — a soda brewing machine meant to compete against Sodastream (SODA) products — was supposed to be the next catalyst for GMCR stock. Instead, it’s a few hundred bucks more than Sodastream models and won’t fully release until 2016.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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