Great Report this week from Morgan Stanley on why there will be a new boom of M&A activity in the next couple of year (i.e. we should see a lot of companies being taken over). Here are the details on why we are going to see a new wave of M&A activity, according to Morgan Stanley:
1) “Huge levels of cash on corporate balance sheets” set the stage for a new wave of acquisition activity,
2) Recent M&A activity is at a cyclical low, notes the report, but “past troughs have been brief raising the possibility of near-term increase in acquisition activity.”
3) “Furthermore, companies doing acquisitions have performed slightly above the market in recent times, potentially emboldening more management teams to consider deals,” says the report, which analyzed M&A activity between 1983 and 2012.
Yesterday, SAC Capital, the hedge fund managed by Stephen Cohen increased its stake in Energy XXI by more than 2.9 million shares to 4,074,684 shares or 5.1 percent.
This is obviously interesting news since SAC Capital might be forced to liquidate some of their hedge fund assets due redemptions from clients concerned over the firms recent SEC inquiry.
Clients of SAC capital have a window to redeem their assets out of SAC Capital this month.
Energy XXI (ticker EXXI) is an independent oil and natural gas exploration and production company. Its growth strategy is acquisitions and is enhanced by its value organic drilling program. The company’s assets are located in United States Gulf of Mexico and the Gulf Coast onshore.
What a week for Research in Motion, on last Wedensday the company announced that it was changing its stock ticker to BBRY and the name of the company to Blackberry. On top of this the company has basically seen every analyst on Wall Street make a comment on their stock.
Bottom line, as our subscriber know we purchased RIMM/Blackberry when no one was talking about it, Wall Street had left it for dead back in late 2012. Our intial recommendation price on RIMM/Blackberry was $7.75, meaning that many of our subscribers have a triple digit return on this stock. We recommended this stock because of a Billionaire Investor, names Prem Watsa, “the Canadian Warren Buffett”, who had purchased a huge chunk of this stock at much higher prices.
Now that RIMM/Blackberry is the talk of Wall Street, the stock has been incredibly volatile because everyday a new analyst comes out with a new price target or a new recommendation. Bottom line this means nothing, remember the most important thing is that our Billionaire Prem Watsa still owns this stock and is still holding his huge position, all of the volatility surrounding the stock in the short term is just noise and should be ignored.
The legendary Hedge Fund SAC Capital Advisors is preparing for what some insiders are saying could be a huge wave of client withdrawls, major institutional and retail clients could be pulling millions and possibly billions of dollars out of SAC Capital in the month of February.
Why? The SEC has already convicted one of SAC Capital’s ex employees for insider trading, and regulators are intensely scrutinizing all off SAC Capital’s recent and past trades.
Therefore many SAC Capital investors are now weighting the risks of being involved with a hedge fund that could possibly be shut down or heavily fined by the SEC.
SAC Capital with $14 Billion under management would have to sell some of its current stock holdings if a wave of investor redemptions comes to fruition, which many insiders say will happen. The quarterly redemption deadline for investors to pull money out of SAC Capital is February 15th.
To profit off this potential forced selling, I am going to list the biggest positions SAC Capital currently owns:
1) Buffalo Wild Wings (BWLD): As of last month SAC Capital owned 930,000 shares or more than 5% of this stock, remember if investors pull their money out of SAC in February, SAC will have to sell many or not all of its stock holdings to raise cash in order to meet its investor redemptions. So BWLD could be a great short, if and when these huge investor redemptions hit the fund.
The Hedge Fund Industry is saturated with mediocrity with over 5000 equity based hedge funds it is virtually impossible to find a small hedge fund that is putting up big numbers. Yet there is one hedge fund that has stayed below the radar of most investors and the mainstream press while at the same time putting up mind boggling returns, and consistently picking stocks that double and triple.
The name of this fund is Barington Capital. Barington Capital is a New York based hedge fund that invests exclusively in undervalued small to mid cap companies. The fund was founded in 1999 by James Mitarotonda, who holds an MBA from New York University.
Barington is an activist, event driven fund that takes a private equity view towards investing. The Fund is always concentrated holding less than 10 stocks in its entire portfolio. Barington likes to take an active role in its investments including; forcing companies to buy back its own stock, making improvements to the company’s cost structure, divesting or spinning off under performing assets and electing its own people onto the target’s company’s boards. All of which are extremely effective at increasing shareholder value and bolstering the stocks performance.
Barington returned 50% in 2009, 30% in 2010 and was flat in 2011. Even more impressive than those performance numbers are the returns from some of its individual stock picks. Barington made more than 500% on Dilliards, and 200% on SYMS .
To invest in this lucrative fund you would need $500,000 and you would have to pay a 2% management fee and 20% of all your profits, instead you can find all of Barington Capital stock picks, and its most recent purchases and largest holdings by clicking here at www.billionairesportfolio.com.(more…)
As the mainstream press has repetitively told you, most Hedge Funds and Mutual Funds underperformed the stock market in 2012. There was a sector of funds, however, that crushed the market. The sector: activist hedge funds.
Daniel Loeb’s Third Point Capital, which manages $9.3 Billion, returned 33.6%. That’s more than double the S&P 500’s 13.6% return. JANA Partners, another billion dollar activist hedge fund, returned 33.3% in 2012.
The fact is, activist hedge funds have crushed the market over the past six years. According to alternative investment consultant, Cliffwater, a group of the largest billionaire activist hedge fund managers returned 9.6% versus a 1.5% return in the S&P 500 over the same time period. But this group of activists didn’t just beat the overall market by more than SIX times, they did it with a lot LESS RISK than an investor would have endured investing in the S&P 500 alone.
So how do activist hedge fund managers achieve this incredible outperformance?
Control
First, they act like private equity investors. By that, I mean, they buy companies. They don’t trade stocks. By definition, activists acquire more than 5% of a company’s stock — an amount the SEC deems to be a controlling interest. In fact, when any investor or institution acquires more than 5% of a company’s stock, they are required to file a 13D form with the SEC — a disclosure, for public record.
Activists typically take such large positions in companies because they WANT control.
Concentration
Second, like private equity investors, activist hedge funds are concentrated. They tend to own less than 15 stocks in their portfolio, even though they manage billions of dollars in their fund. That makes every position in their portfolio, very important to their success.
Consultation
Third, activist investors act like consultants. They usually attach a letter or strategic plan to their 13D filing. This usually details a plan on how to turn the company around, and/or proposes various strategic actions they would like to see the company implement. These actions might include a stock buyback, a special dividend, an asset sale, and/or even a sale of the company itself.
Of course, as a large shareholder, these activist measures are targeted to be very shareholder friendly, with the goal of creating a change of sentiment on the stock.
Peformance
According to an academic paper out of NYU, the average target company of an activist over a 15-year period (up to 2006) had an excess return, over the stock market, of 5% one-month after the activist filed a 13D or announced their 5% ownership.
This outpeformance occurs for two reasons. First, many individual investors and traders like to piggyback these investors, creating demand. And second, anyone who is short the stock usually covers their position knowing that the activists will bulldog their way to creating value in the stock.
Now, activists do a ton of homework! Many activist hedge funds do as much as six months of research before they initiate a position. This research includes everything from talking to competitors, vendors, analysts, consultants and more.
Bottom line: Activists have a competitive advantage over other investors. They have control.
Piggy-Backing Activists
What’s in it for the average investor?
Because activist investors are long term investors, that acquire huge chunks of a company’s stock, they cannot easily sell their position quickly. And because they take such large positions, they are required to disclose these positions to the SEC (which becomes public record). This makes it very easy for every day investors to follow the lead (i.e. piggy-back) these large, influential investors.
WSJ.com has a great article on why you should never pay high fees for equity hedge funds, and why Macro Funds are so attractive: http://online.wsj.com/home-page
