S&P Global Market Intelligence recently stated that activists launched 850 investor activism campaigns in the first half of 2023. Despite the recent backlash against ESG (environment, social, and corporate governance) investing, 86% of the activist investor stocks targeted by campaigns had an ESG component.
Breaking down the numbers in H1 2023, corporate governance issues accounted for 388 activist campaigns, 238 for social, and 108 for environment-related campaigns. The remaining 116 activist campaigns had no ESG component.
The Harvard Law School Forum on Corporate Governance recently discussed the 2023’s three wildest campaigns of 2023. One of the activists on their list was billionaire Carl Icahn. Ironically, Icahn is facing his activist campaign.
Harvard produced another article that showed a short-term boost to targeted stocks but turned negative after six months.
“While 69% of targeted stocks outperformed during the first week, after one year only 42% of stocks outperformed their respective sectors and the median stock lagged by 5 pp [percentage points],” the Harvard Law School Forum on Corporate Governance reported its findings regarding 2,142 activist campaigns since 2006.
Here are three activist stocks that have gained some ground due to their respective campaigns against their businesses.
VF Corp (VFC)
Activist investor Engaged Capital announced on Oct. 17 that it had taken a stake in VF Corp (NYSE:VFC), the apparel conglomerate that owns The North Face, Vans, Timberland and many others. The news pushed VFC shares 14% higher on the day.
Of course, those gains were quickly lost after the company announced its Q2 2024 results on Oct. 30. As part of its announcement, the company withdrew its full-year guidance for revenue and profits for the remainder of the year.
There was good news from its second-quarter results. The North Face delivered 17% revenue growth, while its direct-to-consumer business (excluding Vans) increased by 9%.
At the same time, VF launched Reinvent, new CEO Bracken Darrell’s transformation plan for the company.
“Our transformation plan, Reinvent, will improve our brand-building and execution while addressing with urgency our top priorities of improving North America, accelerating the Vans turnaround, significantly reducing our fixed costs and reducing leverage,” Darrell stated.
Even better news: Engaged Capital feels Darrell is the right person for the job. I agree 100%.
Icahn Enterprises (IEP)
Carl Icahn became the hunted rather than the hunter in May when short-seller Hindenburg Research released a report calling Icahn Enterprises’s (NASDAQ:IEP) businesses “Ponzi-like economic structures.”
Hindenburg believed IEP was overvalued, trading well above net asset value, unlike Bill Ackman and Daniel Loeb’s publicly traded investment vehicles.
“Icahn has been using money taken in from new investors to pay out dividends to old investors,” The New York Times reported Hindenburg’s comments in early May.
This is supposed to be a piece about stocks that gain momentum due to activist investors, but it was too irresistible not to cover Icahn, given the irony involved. IEP shares lost 20% on the news.
Over the summer, IEP shares regained all their losses, only to lose them again in August and into the fall. They now trade 43% where they were in early May.
Hindenburg appears to have forced Icahn’s hand. On Aug. 3, IEP cut its dividend in half to $1 per share in the second quarter. The annual rate of $4 is a whopping 20.5% yield. However, investors should take that with a grain of salt, Hindenburg argues.
“Icahn Enterprises will eventually cut or eliminate its dividend entirely, barring a miracle turnaround in investment performance,” Reuters reported Hindenburg’s comments from May about the dividend.
This is a stock only the most aggressive investors should touch right now.
News Corp (NWSA, NWS)
News Corp (NASDAQ:NWSA, NASDAQ:NWS) shares jumped in mid-October after activist investor Starboard Value increased its stake in the media company controlled by Rupert Murdoch.
Starboard seeks changes to both its business strategy and corporate governance.
Starboard believes that NWSA shares are undervalued. It wants News Corp to spin off its Realtor.com and the rest of its digital-related real estate media. Secondly, on the governance front, it wants the company to eliminate the dual-class share structure that’s currently in place.
According to the company’s latest proxy, the Murdoch Family Trust and Rupert Murdoch’s holdings have 77.7 million Class B voting shares and 14,250 Class A non-voting shares, representing 40.5% of the votes but only 13.6% of the equity.
News Corp’s shares have since fallen below where they were trading before the news of Starboard’s activism. One reason is that Wall Street doesn’t see the point of Starboard’s move, given that nothing can be done without Rupert Murdoch’s blessing.
“‘I’m flummoxed,’ says one portfolio manager who asked not to be named criticizing a fellow activist. ‘It’s like you’re going into battle with a water gun knowing that the other side has nuclear weapons,’” TheMessenger.com reported on Oct. 19.
The other reason could be that it’s barely growing — in Q1 2024, its revenues and segment EBITDA (earnings before interest, taxes, depreciation and amortization) rose just 1% and 4%, respectively.
However, while I see the value angle, Fox Corp (NASDAQ:FOXA, NASDAQ:FOX) is cheaper than the two Murdoch enterprises.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
