One of the ways to find ideas in what is clearly an extended and pricey stock market is to keep track of what activist investors are doing right now.
While not all activist campaigns will succeed, those that do usually provide coat-tail-riding investors with fairly large gains as the target company is restructured or sold at a higher price.
The trick is to use a little common sense combined with a knowledge of the players and a sense of the value of the target company to identify those with a higher probability of a favorable outcome.
Here are three stocks that have activist investors involved — three you should keep an eye on.
Stocks Facing Activist Investors: Ashford Hospitality Prime Inc (AHP)
The situation at Ashford Hospitality Prime Inc (NYSE:AHP) not only looks like it will have a favorable outcome, it has been entertaining to watch.
The hotel REIT has been under attack by several activist firms for a couple of years now, with Sessa Capital leading the charge. There have been letters to the board, letters replying to letters to the board, proxy battles and court fights so far.
There is an offer to buy the company on the table for $20.58 a share, which is a premium of 32% to the current share price. On the most recent conference call, management said that they were open to a deal at that price, but the potential buyer, Weisman Group, has not yet signed a nondisclosure agreement so talks can proceed.
They have opened the sale process up to several other firms and are actively talking to several potential buyers. I suspect this ends up with a deal to sell the company and its portfolio of hotel properties for at least $20.58, if not higher.
While we wait, we collect a dividend payment that amounts to a 3.1% yield at the current price.
Stocks Facing Activist Investors: Anchor Bancorp (ANCB)
Joseph Stilwell has had a position in Anchor Bancorp (NASDAQ:ANCB) in Lacey, Washington, since 2012 and now owns 9.7% of the bank. It was recently announced that Mr. Stilwell had been granted a representative on the board and reached a standstill agreement with the bank under which he will not buy any more shares or agitate for the sale of the bank.
Earlier this year Mr. Stilwell had said that although he initially supported managements plans to enhance shareholder value, he thinks the plan is not working and it is time to sell the bank. He reiterated that belief in his 13D filing announcing the agreement saying that “We believe it is in the best interest of shareholders for the Issuer to be sold as soon as possible to the highest bidder.”
Based on current takeover multiples, I think a deal for the bank could be worth between $34 and $36 a share which represents a decent gain from the current $25 stock price.
Stocks Facing Activist Investors: MagicJack VocalTek Ltd (CALL)
There is a pretty good fight brewing over at MagicJack VocalTek Ltd (NASDAQ:CALL) as well.
Last month Kanen Asset Management sent a letter to the board criticizing the performance of the company and behavior of the board. The letter noted that under the current chairman and CEOs’ watch, the stock price had fallen from $18.55 to just $5.28 in a period where most of their peers in wireless communications had seen their stock price rise.
They called for the board to institute a $50 million stock buyback to be executed over the next three years and install two board members with experience in wireless telecom and Voice Over Internet Protocol who also had a strong track record of growing shareholder value.
The letter concluded that if the share count were reduced and the company able to reestablish a growth path, the shares could trade as high as $27.20 in 2017.
While that may be optimistic, Magic Jack trades with an enterprise value/EBIT ratio of around 2, so any positive improvements or changes at the board level could lead to impressive gains
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.