Activist activity is heating up — and these investors are becoming increasingly bloodthirsty. Over recent months, we are seeing a sizeable increase in both the number and size of companies targeted by activists. In fact, in the first five months of 2017 activists started nine campaigns targeting top management, the fastest pace on record, according to FactSet. Activists take stakes and push for big changes or takeovers to boost share prices.
As a result, prices can spike simply on news of activist involvement. Bristol Myers Squibb (NYSE:BMY) shares rose by almost 5% in February after Dow Jones revealed that activist investor Carl Icahn had a stake and saw the drugmaker as a potential takeover target.
In April shares of Whole Foods Market, Inc. (NASDAQ:WFM) rose nearly 10% after Barry Rosenstein’s Jana Partners disclosed a large WFM stake. Jana then made millions by swiftly selling its WFM shares after the Amazon.com, Inc. (NASDAQ:AMZN) takeover.
So where will activist investors pounce next? TipRanks covers over 200 hedge fund managers and 5,000 stocks. From this extensive database, we swoop in and look at five stocks attracting activist attention right now.
Activist Target 1: Teva Pharma (TEVA)
Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) took a nosedive at the beginning of August. Current prices of $17.14 are almost half pre-earnings results. The company announced poor earnings, lower full-year guidance and reduced dividend payments.
Teva is now pulling operations in 45 countries and cutting over 7,000 jobs. Irina Rivkind Koffler, a five-star Mizuho Securities analyst says, “The weakness was attributed to a number of factors in the generics business including pricing pressure, decreased volumes, competition, and delayed launches.”
With prices so low, Teva is now looking vulnerable to activist activity. While Teva’s huge $35 billion debt burden makes a quick takeover deal unlikely, activists can still try to change the company internally.
And disgruntled shareholders are likely to support activist proposals to mix up the board. Teva’s largest active private investor, Benny Landa, claims “the company board of directors is incapable of making big decisions and getting the company back on track.”
He says the directors are sabotaging efforts by the company chairman to attract a CEO with a strong international reputation.
Activist Target 2: General Motors (GM)
Detroit-based General Motors Company (NYSE:GM) faced an attack from David Einhorn’s $7.19 billion Greenlight Capital fund in June. However, even after an aggressive two-month campaign, over 90% of shareholders voted against Einhorn.
Following the vote, Einhorn said:
“We are disappointed that shareholders have elected to maintain the status quo. We congratulate GM’s management on their win today.”
But five-star Deutsche Bank analyst Rod Lache says the game isn’t over. He points out that GM is still cheap compared to the rest of the S&P 500, which makes it weak. Lache argues that activists could find more support for a plan to spin off GM’s faster-growing units.
And: “It would not be far-fetched to say that there are significant parts of $50 bn (market cap) Tesla (TSLA), $70 in Uber, and $15 bn Mobileye (MBLY) inside of GM.” Lache concludes his report by saying:
“Asset spin-offs seem to be more likely. The Universe of Active Growth Investors is much larger than that of Active Value Investors. We see this every day based on the number of incoming calls on “Growth Suppliers” vs. inquiries regarding Cyclical Suppliers or Automakers. This is also evident in valuations. And we believe that this will ultimately be recognized by GM, Lear (LEA), and others with undervalued growth assets.”
Activist Target 3: IBM (IBM)
Flailing tech company International Business Machines Corp. (NYSE:IBM) is shaping up to be a perfect activist target. Prices have crashed to just $139- making the $200 share prices seen five years ago seem very distant indeed. Year-over-year sales are also dropping for the 21st consecutive quarter. The Oracle of Omaha, and all-around hedge fund guru, Warren Buffett, sold a third of his stake in IBM in Q1 and Q2 of 2017.
“I don’t value IBM the same way that I did 6 years ago when I started buying … I’ve revalued it somewhat downward,” Buffett told CNBC. “When it got above $180 we actually sold a reasonable amount of stock.” Once Buffett exits, the door is open for activist investors. The Deal even reports that IBM has hired two investment banks to strengthen its defenses against activist attacks.
Top Jefferies analyst James Kisner recently slashed his IBM price target to $125 from $135. He says the company is “outgunned” in the battle for AI talent. Worryingly the situation may deteriorate:
“Our checks suggest that IBM’s Watson platform remains one of the most complete cognitive platforms available in the marketplace today. However, many new engagements require significant consulting work to gather and curate data, making some organizations balk at engaging with IBM.”
Kisner reiterated his sell rating on IBM on Aug. 15.
Activist Target 4: Danone (DANOY)
U.S.-listed shares of French food company Danone SA (ADR) (NASDAQ:DANOY) are popping on news of activist involvement. A recent report has revealed that Keith Meister’s $3 billion activist investment fund Corvex Management now has a big position in the famous yogurt-making company.
Indeed, Meister thinks the stock is seriously undervalued according to Bloomberg sources. He has Danone holdings of about $400 million according to people familiar with the matter as the information is not public.
Meister ramped up his Danone investment because he believes that the company can rebound. He wants to improve management and combat yogurt weakness by focusing more on the health and wellness trend.
In particular, Danone has seen its soya milk offerings become increasingly popular as people seek dairy alternatives. At the same time, as a relatively cheap, under-earning asset a takeover offer is also possible.
Activist Target 5: General Electric (GE)
General Electric Company (NYSE:GE) may be one of the U.S.’s biggest companies- but at the moment the stock is looking very fragile. Indeed, since the beginning of the year share prices are down by a huge 20%. Given such low prices, it is not surprising that Buffett has decided to exit the stock for good.
Filings with the SEC reveal that Buffett sold approximately 10.6 million shares during the second quarter.
But while Buffett may be out, infamous activist investor Nelson Peltz is in. His $13 billion Trian Fund Management ramped up its GE holding in the last quarter by just over 2.5% to shares worth a whopping $1.91 billion. Peltz has a very impressive track record according to TipRanks. He is ranked #18 out of 202 hedge fund managers and he has a portfolio gain of 90% since June 2013.
In June long-standing CEO Jeff Immelt announced his retirement after 16 years at the company. Was Peltz behind this move? It seems likely. Now new CEO John Flannery is focusing on generating more cash, widening profit margins and reducing overhead costs. He says: “We are taking a hard look at our corporate spending, going through a zero-based budget exercise on all of our functions and making sure 100% of our GE Store outlays are accretive to the overall results of the company.”
The next step: to install a Trian representative on the board. The company’s 2018 annual meeting is likely to only submit director applications by November. However, at this point, it seems more realistic for Peltz to publish another white paper with instructions and targets for the new CEO. Peltz wants shares to reach $45 (a big leap from the current share price of $25).
Which stocks are the top 25 analysts recommending right now? Find out here.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of 4,500 analysts, 5,000 financial bloggers and even 37,000 corporate insiders. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.