There is no guaranteed way to earn a profit, but there is one method that makes it a lot easier for investors: Do as the pros do.
Cabela’s confirmed in early October of last year that it has agreed to sell itself to rival Bass Pro Shops. As part of the merger agreement, Bass Pro Shops valued the fishing and hunting equipment chain at $65.50 per share, which represents a hefty 19.2% premium versus its prior closing price.
Cabela’s shareholders smart enough to cash out following the announcement netted an approximate 15% gain in just one day. At the same time, millions of investors were left sitting on the sidelines and staring at their computer screens with envy. But this doesn’t have to be the case; Cabela’s sale process was far from secretive.
Here’s what happened.
Elliott Management, an activist investor who owned a major stake in Cabelas, had been pushing Cabela’s board of directors and management to sell itself. The investor initially disclosed an 11% stake in the company on Oct. 28, 2015, when it argued the stock is significantly undervalued. The significantly undervalued stock price at the time? $39.26 per share.
Elliott Management couldn’t make it any clearer that it wanted Cabela’s to sell itself.All investors had to do was follow Elliott Management’s lead, then sit back and let the market reward patience.
Right now, you could benefit from three other companies that have attracted activist investors:
Stocks Targeted by Activists: Bob Evans Farms (BOBE)
Bob Evans Farms Inc (NASDAQ:BOBE) is a full-service restaurant with more than 500 retail locations across 18 states. The company also produces and distributes sausage, refrigerated side dishes and frozen food products in grocery stores.
Bob Evans’ stock closed for trading on Wednesday, Jan. 4 at $52.22 which values the company at $1.02 billion.
Sandall Asset Management, an activist investment firm and major Bob Evans shareholder, thinks the market is grossly undervaluing the stock — and it won’t stop pushing the company to implement the necessary changes to unlock the trapped value.
According to the investor, BOBE is better off splitting its business into two segments: one that focuses on its restaurant segment, and another — which could be valued at $1.2 billion alone, or $56-$64 per share — on the more lucrative packaged food business.
The investor has a valid point. The restaurant sector as a whole ended 2016 with declining traffic trends while grocers saw an uptick in business. All management needs to do is take action and unlock that trapped shareholder value.
Stocks Targeted by Activists: Kate Spade (KATE)
Shares of Kate Spade & Co (NYSE:KATE), the seller of high-end accessories and fashion products, flirted with $40 per share at the height of the brand’s popularity in 2014. Since then, it has slowly declined, and even hit a multiyear low of $14.02 in 2016.
Granted, the apparel and fashion industry as a whole has been quite poor due to competitive pressures, the constant need for discounting, an uncertain economic outlook and other factors. However, a New York-based activist investor and long-term Kate Spade shareholder Caerus Investors is fed up with the company’s excuses for poor performance relative to its peers.
Kate Spade is a relatively cheap company valued just north of $2.2 billion — affordable for a number of peers and strategic buyers. And despite its struggles, KATE is attractive on a couple fronts. Caerus Investors noted that Kate Spade’s revenue is projected to grow at 11% this year compared to just 2% for its two closest peers. Moreover, Kate Spade’s EBITDA is expected to grow by 21% as opposed to just 16% at Coach Inc (NYSE:COH), while Michael Kors Holdings Ltd (NYSE:KORS) will see declining EBITDA.
Caerus is “incredibly frustrated,” and frustrated activist investors who feel ignored can sometimes lead to … constructive destruction.
Case in point, restaurant firm Darden Restaurants, Inc. (NYSE:DRI) ignored activist Starboard Value, which held an 8.8% stake. That ultimately led to the complete overhaul of its 12-member board, and a clean slate to make much-needed changes.
Stocks Targeted by Activists: Chipotle Mexican Grill (CMG)
After a humiliating 2016 in which his large bet on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) flopped, Ackman needs a big win. And he might accomplish this via his investment in Chipotle Mexican Grill (NYSE:CMG).
Chipotle stock, which traded solidly around the mid-$700s in 2015, was crippled by a food illness scandal that roughly halved the stock. Ackman, the firm’s second-largest investor, is looking to leverage his 9.9% stake and personally oversee the many major changes at the highest levels to right the ship. One major shareholder has already urged Ackman to recruit new directors to Chipotle’s board.
A nomination to the board of directors would be seen as Ackman’s next step, and it could be a smart move given his track record of success in the foodservice industry.
For instance, Ackman held a large position in Burger King in 2012, which rewarded shareholders greatly when the burger chain merged with Canada’s Tim Hortons to become Restaurant Brands International Inc (NYSE:QSR).
Ackman’s 2.8 million shares are worth more than $1.1 billion, so he’s willing to put his money where his mouth is. The question now is how far Chipotle will let him go to return the chain to peak popularity.
As of this writing, Jayson Derrick holds shares of Bob Evans and Kate Spade.