When high-quality stocks sell off for non-fundamental reasons, billionaire investors lick their chops.
As you probably know, Warren Buffett has made his fortune being “greedy when others are fearful.” Billionaire Jeffrey Ubben, of ValueAct Capital Management, has been quoted as saying, “As soon as a company falls out of bed, for whatever reason, we can go right to our old notes.” Ubben bought a $1 billion stake in 21st Century Fox when the stock fell last July, in reaction to Fox’s bid for Time Warner (TWX).
Billionaire Bill Ackman recently said in an investment letter that “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.”
Legendary billionaire activist Carl Icahn is another investor who likes to add to his positions after a correction or dip. He has added to his positions in both Nuance Communications and Navistar International over the past year.
Some investors take macro and news-driven dips as an opportunity to take companies private.
Jeff Smith’s $2.5 billion Starboard Value fund owns RealD (RLD) at an average cost of around $10.50. After this week’s broad market decline, he offered to take the company private at $12, a 28% premium for shareholders from yesterday’s share price.
Given the recent slide in broader stocks, I think we’ll find that the world’s best billionaire investors and hedge funds are using this opportunity to add to their losers. Here are four stocks that would fit the bill:
Hertz (HTZ) – Carl Icahn owns almost 9% of Hertz at an average cost of $28.50. The stock is selling at $24.00 today. That’s a 17% discount to what Icahn paid for his shares.
MeadWestvaco (MWV) – Starboard Value’s average cost in Mead is $43.50 a share. The stock is currently selling for around $40. According to their 13D filing, Starboard believes the stock could be worth $69 a share if MeadWestvaco management follows through with their restructuring plan. That would be a 72% return from Mead’s share price today.
Armstrong World Industries, Inc. (AWI): ValueAct Capital owns nearly 17% of this stock, though it’s down 10% in the past month. According to Barron’s, ValueAct has averaged a 59% return on stocks when they own a controlling stake. That compares to 9% for the S&P 500 over the same time period.
Apache Corp (APA) – Billionaire Barry Rosenstein of the activist hedge fund Jana Partners reported a $1 billion stake in Apache in July. The stock has dropped from $104 to under $90.
To learn more about the stocks owned by the world’s best billionaire investors, follow me at BillionairesPortfolio.com.