In his quarterly investment letter recently, billionaire activist investor Bill Ackman gave us clues on selecting stocks that can become big winners.
In a world where many think stock prices are efficient, he argues quite the opposite. And in a world where many think good investing has to be sophisticated and only the domain of big, powerful hedge funds, he all but said, it wasn’t.
Here’s what he said: “Minority stakes in high quality businesses can be purchased in the public markets at a discount. These discounts principally arise because of two factors: shareholder disaffection with management,and the short term nature of large amounts of retail and institutional investor capital which can overreact to negative short-term corporate or macro factors.”
He’s telling all investors that there are stocks that are undervalued for all of the wrong reasons. And the average investor can buy them, just like he does.
At Billionairesportfolio.com, one of our favorite screens identifies stocks that are controlled by the world’s top activist hedge funds and have temporarily sold off for non-fundamental reasons.
This is how you find deeply undervalued stocks, with a catalyst at work to unlock value. And that can be a recipe for big winners. The catalyst in this case is a huge, influential, bulldog shareholder that is fighting everyday to ensure his investment is a profitable one.
With that, below is a list of four activist-owned stocks that have pulled back for non- fundamental reasons. And each has at least a 50% upside to the activist hedge fund’s target price. As a bonus, the fifth stock is also activist owned, but it sits near an all-time high. Still, the activist involved in this one thinks another 65% is ahead.
1) Hertz (HTZ) – Billionaires Carl Icahn and Barry Rosenstein own a combined 18% of Hertz. Hertz is down more than 17% over the last 6 months due to accounting issues. Yet billionaire Barry Rosenstein, head of the activist hedge fund Jana Partners, said that Hertz should triple, as they have plenty of cash flow to buy back as much as 25% of their outstanding stock. That’s a 300% return from Hertz’s current share price!
2) Twenty-First Century Fox (FOXA) – Billionaire activist hedge fund manager, Jeff Ubben of ValueAct Capital owns more than $1 billion of Fox. Ubben recently said in an interview that his firm purchased Fox when it sold off after its failed merger attempt, and that he thought the stock was worth $50, or a 50% return from its share price today.
3) NCR Corp. (NCR) – Marcato Capital, a $3 billion activist hedge fund run by Billionaire Bill Ackman’s protégé, Mick McGuire, owns more than 6% of NCR. NCR is down 22% over the past year, yet McGuire recently stated that NCR is worth more than $50 a share, or a 100% return from its share price today.
4) EMC Corp. (EMC) and Juniper Networks (JNPR) – Billionaire Paul Singer, head of the activist hedge fund Elliot Management, owns billion dollar plus stakes in EMC and Juniper. Singer and Elliot have a great track record of forcing companies to sell out at a huge premium. In their last eight activist campaigns in the technology sector, six of the companies were acquired for a significant premium. Elliot has publicly stated that EMC could be worth as much as $45 a share, or a 50% return from its share price today. And Juniper could be worth $35 a share, almost a 50% return from its share price today.
5) Finally, Apple Inc. (AAPL) — Billionaire Carl Icahn has been a very vocal shareholder in Apple. Since tweeting his stake a little more than a year ago, AAPL, the most widely held stock in the world, has more than doubled. Still, Icahn thinks it’s worth $200 a share. That’s 66% higher than its current price.
BillionairesPortfolio.com helps average investors invest alongside Wall Street billionaires. By selecting the best ideas from the best billionaire investors, our exited stock investment recommendations have averaged a 31% gain since 2012 , beating even the great Carl Icahn’s record for the same period.