Bloomberg via Getty Images William ‘Bill’ Ackman founder and CEO of Pershing Square Capital Management (left) Daniel Loeb, founder and CEO of Third Point: Two activist investors taking big positions in large public companies and demand even bigger changes. Is activist investing a force for good when it comes to shareholders? Recent events, namely the Bill Ackman-J.C. Penney (JCP) debacle, have left investors and analysts tired of the outspoken hedge-funders of the world. There are, of course, plenty of activists whose actions have enhanced not just their funds’ portfolios, but those of passive, minority shareholders. They’ve forced companies to make positive changes — to restructure, elect new board members, and get back on track toward healthier operations. Then again, others end up like J.C. Penney — a seemingly lost business, rich with legacy yet left crippled by boardroom drama. That leaves us — the average consumers and investors — with a pressing question: Are these megaphoned power players trying to effect change that will benefit all, the company included? Or are they just after results that will juice their own returns? The Age of Activism While many activist investors consider themselves to be molded in the image of a certain Omaha-based super-investor, many of today’s hedge fund superstars have taken a very different approach to the craft of identifying mispriced securities. Like the old guard — raiders like Carl Icahn and Nelson Peltz — young guns such as Daniel Loeb and Bill Ackman take substantial positions in large public companies and demand change in an approach that is about as far from Warren Buffett’s investor behavior as one can get. Their style can be best described as personality-driven activism. The practice is on the rise, too. According to FactSet, 2012 saw 21 activist campaigns in companies with market caps larger than $1 billion. In 2010, the number was 11. In 2003, there were four. While some passive shareholders may welcome a helping hand if their pick isn’t performing, outsiders seem to be more bothered by the nasty tenor of the dealings. Perennial nice guy George Clooney has spoken out against hedge fund investor Loeb — a major investor in Sony (SNE) — going as far as to call the investor a “carpet bagger … What he’s doing is scaring studios and pushing them to make decisions from a place of fear.” Even Buffett advised Apple (AAPL) CEO Tim Cook to pay as little attention to David Einhorn as possible, and just focus on running the company. You get the point: Activist investing tends to generate opinions. As an individual investor, should you avoid swimming in the same pool as headline-generating sharks? Or is the presence of an activist investor a reason to wade in and test the waters? It’s Complicated Yahoo (YHOO) is a recent example of the complex activist-management relationship. Loeb took a substantial position in the troubled Internet company, acquired a board seat, ousted then-CEO Scott Thompson, and then spearheaded a campaign to hire Marissa Mayer, who has since gone on to become known as a miracle worker — the savior of Yahoo. Now, it’s not certain that Mayer would not have joined Yahoo without Loeb’s presence, but even the CEO herself acknowledges the investor’s vision for the company, whose stock is up more than 80 percent in just 12 months. If the story ended there, we’d have an activist-management success story. But it doesn’t. Earlier this month, Loeb resigned from the board and dumped his shares, claiming Mayer did not heed his advice to lay off up to 30 percent of the company — a condition he originally campaigned for and Mayer had agreed to. There are other ways the activist-management relationship can go. Consider the dealings of another large fund, Elliott Advisors, which amassed a tremendous stake in National Express (NEX) — the U.K. transportation conglomerate. Following the usual recipe, Elliott attempted to conduct a board coup d’etat, and gain greater influence over the direction of the company in hopes of breaking it up and selling off the pieces. The battle raged throughout 2011, but the fund never achieved its coveted board seats. In March of this year, Elliott dumped half of its stake in the company. Since March 2011 through April of this year, the stock had plummeted nearly 20 percent — lagging the S&P 500 by roughly 40 percent. In the meantime, the company spent millions fighting off Elliott — a distraction that certainly took management’s focus away from the continued operations of its businesses. Then, of course, there is the sad story of J.C. Penney and Bill Ackman. With as much attention as the story has gotten, there is no reason to recount details, other than cementing the fact that J.C. Penney has alienated its already weak shopper base, gone through a variety of managers, and lost billions in market value — bringing Ackman and other shareholders down with it. It’s not that Ackman had malicious intent for the company — he could have pushed for its dissolution or for taking it private, but instead he truly believed in the viability of the business, and put a retail genius (though in a much different business) in the driver’s seat to make it happen. Things didn’t work out, and nearly every media outlet, in addition to Wall Street, has vilified Ackman. As the investor exits his position, various other vocal investors — from George Soros to Kyle Bass — have snatched up roughly one-third of the company’s stock in hopes of achieving what Ackman couldn’t. Who Ultimately Pays the Price? There is little doubt that activist investing is a growing game here in the United States. And, with more players, we may see corporations armoring up to protect themselves. And that’s not good news for investors. Companies will have to spend more on legal expenses and anti-activist strategy-making, and undergo boardroom shuffles that, at their core, do not necessarily have direct positive impacts on the operating business. Another takeover defense is the “poison pill” tactic — flooding the market with shares to prevent any one investor from gaining too much ownership, but also diluting existing shareholders. Some firms need change, and some firms need an outsider, outspoken party to encourage or force that change. However, it may end up being a minority that ends up creating positive change, while many activist stakes could end up plaguing retail investors with extra costs, internal turmoil, and in the worst case, a loss of direction.
Best known for his days as Arthur Herbert Fonzarelli (aka The Fonz) from "Happy Days," Henry Winkler has recently become the spokesman for Quicken Loans’ reverse mortgage business. What It Is: Typically aimed at seniors, a reverse mortgage provides homeowners with monthly payments based on the equity of their house. As the homeowner, you retain the title to your home until you die, move or sell the home, at which time the principal and interest owed on the loan is repaid from the sale proceeds.
Top 5 Warren Buffett Companies To Own In Right Now: Ass British Food(ABF.L)
Associated British Foods plc operates as a diversified food, ingredients, and retail group. The company operates through five segments: Sugar, Agriculture, Retail, Grocery, and Ingredients. The Sugar segment engages in growing and processing sugar beet and sugar cane for sale to industrial users. The Agriculture segment procures grain and oilseeds from farmers and co-products from the food, drink, and bioethanol industries. It manufactures and sells animal feeds and premixes to farmers; and micro ingredients to farmers and feed manufacturers. This segment also provides agronomy advice and crop inputs. The Retail segment is involved in buying and merchandising clothing and accessories. It offers womenswear, lingerie, childrenswear, menswear, footwear, accessories, hosiery, and home ware through the Primark and Penneys retail chains primarily in the United Kingdom, the Republic of Ireland, Spain, the Netherlands, Portugal, Germany, and Belgium. The Grocery segment manufactur es hot beverages; sugar and sweeteners; vegetable oils; bread, baked goods, and cereals; ethnic foods, herbs, and spices; and meat products that are sold to retail, wholesale, and foodservice businesses. The Ingredients segment produces bakers? yeast, bakery ingredients, specialty proteins, enzymes, lipids, and yeast extracts. The company operates in the United Kingdom, Europe, Africa, the Americas, and the Asia Pacific. The company was founded in 1935 and is headquartered in London, the United Kingdom. Associated British Foods plc is a subsidiary of Wittington Investments Limited.
Top 5 Warren Buffett Companies To Own In Right Now: Cohu Inc.(COHU)
Cohu, Inc. engages in the development, manufacture, sale, and servicing of test handling and burn-in related equipment, and thermal sub-systems for the semiconductor industry worldwide. The company operates in three segments: Semiconductor Equipment, Microwave Communication Systems, and Video Cameras. The Semiconductor Equipment segment develops, manufactures, and sells pick-and-place semiconductor test handlers, burn-in related equipment, and thermal sub-systems to semiconductor manufacturers and semiconductor test subcontractors. It also develops, manufactures, and sells gravity-feed and test-in-strip semiconductor test handling equipment used in final test operations. The Microwave Communication Systems segment develops, manufactures, and sells microwave communications equipment, antenna systems, and associated equipment, which are used in the transmission of video, audio, and telemetry. These products have applications in unmanned aerial vehicles, law enforcement, secu rity and surveillance, and electronic news gathering. Its customers include government agencies, law enforcement and public safety organizations, unmanned air vehicle program contractors, television broadcasters, entertainment companies, professional sports teams, and other commercial entities. The Video Cameras segment develops, manufactures, and sells closed circuit video or CCTV cameras, equipment, and systems for security, surveillance, and traffic monitoring. It also offers accessories, which include monitors, lenses, and camera test equipment. This segment serves end-users, government agencies, original equipment manufacturers, contractors, and value-added resellers. Cohu, Inc. markets its products through direct sales force and independent sales representatives. The company was formerly known as Cohu Electronics, Inc. and changed its name to Cohu, Inc. in 1972. Cohu, Inc. was founded in 1947 and is based in Poway, California.
Best Heal Care Companies To Own In Right Now: ING Group N.V. (IDG)
ING Groep N.V., a financial services company, provides banking, investment, life insurance, and retirement services for individuals, families, small businesses, corporations, institutions, and governments worldwide. The company provides savings accounts, mortgage loans, consumer loans, credit card services, and investment products, as well as current account services and payments systems; life and non-life insurance products; asset management products and services; mortgage products; and risk management services. It also offers commercial banking products and services, including lending products, such as structured finance; payment and cash management, and treasury services; and specialized and trade finance, derivatives, corporate finance, debt and equity capital markets, leasing, factoring, and supply chain finance. In addition, the company provides individual endowment, and term and whole life insurance products, as well as traditional, unit-linked, and variable annuity life insurance products for individual and group customers; fire, motor, disability, transport, accident, and third party liability insurance products; employee benefits products and pension funds; retirement services, fixed annuities, mutual funds, and broker-dealer services; and disability insurance products and complementary services for employers and self-employed professionals comprising dentists, general practitioners, and lawyers. Further, the company offers investment management services. ING Groep N.V. operates a network of approximately 280 branches in the Netherlands; and 773 branches in Belgium. The company was founded in 1991 and is headquartered in Amsterdam, the Netherlands. ING Groep N.V. is a subsidiary of Stichting ING Aandelen.
Top 5 Warren Buffett Companies To Own In Right Now: Innovation Grp(TIG.L)
The Innovation Group plc provides software and outsourcing solutions to insurance, automotive, and property sectors. The company?s software solutions include Insurer policy, a policy management solution; Insurer Claims, a claims management solution; Insurer Analytics, a business intelligence platform; Insurer Pyramid, a specialist workers? compensation policy and claims solution; Innovation Symbility, a wireless property claims handling solution; and Innovation Conversion, a data migration solution. It also provides business process outsourcing solutions in the areas of policy management, warranty management, fleet management, risk and fraud management, property and subsidence management, first notice of loss, claims management, incident management, and repair and supply chain network management, as well as subrogation, recovery, and salvage. The Innovation Group plc operates in the United Kingdom, North America, Australia, South Africa, Germany, France, Spain, Belgium, In dia, and Pakistan. The company was incorporated in 1996 and is headquartered in Whiteley, the United Kingdom.
Top 5 Warren Buffett Companies To Own In Right Now: Cliffs Natural Resources Inc.(CLF)
Cliffs Natural Resources Inc., a mining and natural resources company, produces iron ore pellets, lump and fines iron ore, and metallurgical coal products. The company operates six iron ore mines in Michigan, Minnesota, and eastern Canada; two iron ore mining complexes in Western Australia; five metallurgical coal mines located in West Virginia and Alabama; and one thermal coal mine located in West Virginia. It also owns a 45% economic interest in a coking and thermal coal mine located in Queensland, Australia; and a 30% interest in Amapa, a Brazilian iron ore project in Latin America, as well as chromite properties in Ontario, Canada. The company, formerly known as Cleveland-Cliffs Inc, was founded in 1847 and is headquartered in Cleveland, Ohio.
- [By Whitney Kisling]
Gains were led by stocks that had fallen in 2013. First Solar Inc. (FSLR), the Tempe, Arizona-based power technology developer, has jumped 38 percent since sliding 13 percent in the first quarter. Cliffs Natural Resources Inc. (CLF), the Cleveland-based iron-ore mining company, rallied 8.8 percent on April 9, its biggest increase since September. The shares were down 52 percent for 2013 before last week.