Argus & Vickers: Deep Value and Activists

11/11/2016 10:00 am EST

Focus: STOCKS

John Eade

President and Senior Analyst, Argus Research Group

“Deep Value, Activist Investing” continues to gain advocates (and capital) as high-profile managers train their sights on underperforming targets, explains John Eade, editor of Argus Outlook.

According to Hedge Fund Research, assets under management in activist funds have almost quadrupled since 2008 — from a level of $32 billion to $120 billion, as of year-end 2014.

And why are assets growing? Activists are achieving successful results. In 2015, activists were able to get management to address their demands 69% of the time, up from 66% in 2014, according to the Activist Insight.

In 2015, activists typically went after board seats, sought M&A activity, targeted the balance sheet or pushed for operational improvements. However, despite the success, the performance of the targeted stocks was not as strong as in years past.

The Activist Insight Index, compiled from more than 30 activist funds, was down more than 3% after fees through the first three quarters of 2015.

In 2014, HFR’s Activist Index generated a 5.2% return, compared to a 3% return for the broad HFR Weighted Composite Index.

Three- and five-year comparisons through 2014 were favorable as well. We keep a close eye on the activists and the stocks they like.

The analysts at Argus Research -- teamed with the data analysts and programmers at Vickers Stock Research as well as the portfolio strategists at Argus Investors Counsel -- have designed an analytical process that identifies value stocks which may be poised for outperformance because activist investors have built substantial positions in the companies.

The result of that process is a group of stocks that exhibit potentially powerful characteristics for stock performance: attractive valuations and an activist trigger.

Below is a list of the stocks that met both criteria last year and are included in the Turnaround Strategy Portfolio. The list is broken into sectors and each stock name is followed by the name of the activist investor involved.

Materials

Air Products and Chemicals (APD) -- Pershing Square
Eastman Chemical (EMN) -- Atlantic Investment Management
FMC (FMC) -- Glenview Capital Management
Owens-Illinois (OI) -- Atlantic Investment Management

Consumer Discretionary

AutoNation (AN) -- Jana Partners
General Motors (GM) -- Greenlight Capital
Ralph Lauren (RL) -- Southeastern Asset Management
Sotheby's (BID) -- Marcato Third Point

Energy

Anadarko Petroleum (APC) -- Carlson Capital
Devon Energy (DVN) -- Carlson Capital
Williams (WMB) -- Corvex Management

Financials

American International (AIG) -- Carl Icahn
Morgan Stanley (MS) -- Carlson Valueact
Synchrony Financial (SYF) -- Jana Partners

Healthcare

Allergan (AGN) -- Third Point LLC
Allscripts Healthcare Solutions (MDRX) -- Blue Harbour Group LP
Biogen (BIIB) -- Healthcor Management
Hill-Rom (HRC) -- Healthcor Management
Hologic (HOLX) -- Healthcor Management
Laboratory Corp of America Holdings (LH) -- Glenview Healthcor
Mylan N.V. (MYL) -- Paulson Greenlight

Industrials

AECOM (ACM) -- Greenlight Capital
AGCO (AGCO) -- Blue Harbour Group LP
United Technologies (UTX) -- Southeastern Asset Management

Information Technology

Avnet (AVT) -- Blue Harbour Group LP
Citrix Systems  (CTXS) -- Elliott Management
F5 Networks (FFIV) -- Blue Harbour Group LP

Real Estate

Rayonier (RYN) -- Southeastern Asset Management

Utilities

CenterPoint Energy (CNP) -- Elliott Management
NRG Energy (NRG) -- Carlson Capital

Subscribe to Argus Outlook here…

By John Eade, editor of Argus Outlook

Related Articles on STOCKS

Keyword Image
Seasonal Trading in Oil
14 hours ago

Oil companies typically come into favor in mid-December and remain so until late April or early May ...