Delivering Alpha: In 'golden age' for activists, 12 firms to watch

Underperforming corporate executives beware: The activists are coming for you.

It's been a banner, possibly record-breaking, year for the activists who swarm boards and demand change, sometimes in high-profile media campaigns, other times in more low-key approaches to wrest control of companies and forcefully implement their agendas.

In all, there have been 64 such cases this year, 3½ times as much as 10 years ago and well on pace to eclipse 2014's standard of 102, according to S&P Capital IQ.

"We have reached a golden age of investor activism," S&P Capital IQ said in a report. "The success of investor activism has helped these firms both attract more capital and deliver greater returns as their principals now regularly make news and headline events. Many of them have become household names who literally move markets."

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The biggest names in investor activism will be on hand Wednesday at "Delivering Alpha," the annual investor conference presented by CNBC and Institutional Investor. They include Carl Icahn and Bill Ackman, two rivals who literally hugged out their differences at last year's event. Others to be on hand include Nelson Peltz of Trian Fund Management and Paul Singer of Elliott Management. Yet another panel will feature Keith Meister of Corvex Management, Tom Sandell at Sandell Asset Management and Jeffrey Smith of Starboard Value.

Multiple factors have helped drive the success of activists. They include a bull market in equities, low revenue growth, swelling cash balances on company balance sheets, and, of course, strong results, which breed more activist efforts.

"Investor activism has become a leading influence in our capital markets today unlike in the past when these so-called corporate raiders were viewed as an anomaly for public company dealings," the S&P Capital IQ report said. "Now they are shaping boardroom discussions regardless if a company has been targeted directly or indirectly with activity in its peer group."

Some of the highest-profile cases include Icahn's maneuvering at Apple and Family Dollar and Ackman's continuing war against Herbalife and his efforts at JCPenney. David Tepper's Appaloosa Management this year took aim at General Motors, while Dan Loeb's Third Point has been in a high-profile struggle with Sotheby's.

But where are the next big battles going to happen?

Activist investors Carl Icahn and Bill Ackman at the 2014 Delivering Alpha conference in New York.
David A. Grogan | CNBC
Activist investors Carl Icahn and Bill Ackman at the 2014 Delivering Alpha conference in New York.

S&P Capital IQ took a shot at each of the S&P 500's 10 sectors to find companies ripe for activist involvement:

Consumer discretionary: The Gap, the clothing chain that "could benefit from a fresh strategic perspective, and DreamWorks, the animator that has seen earnings volatility and where an activist "could help actualize its potential attractiveness as a takeover target."

Consumer staples: J.M. Smucker, with its "sluggish top-line growth in the past five years (4.3 percent compound annual growth rate) that reflects healthy cash flows."

Energy: SM Energy, which "has a long-term debt-to-capital ratio of almost 54 percent, and its stock price has dropped by about 40 percent during the past 12 months."

Financials: S&P did not point to any glaring examples, but said American Express "will attract activist attention if problems persist for the next two years, which is generally the time span of underperformance that attracts activist attention."

Health care: Tenet Healthcare, whose "stock performance has lagged behind its peers' in the past several years, and its EBITDA margins are well below its peers' at around 12 percent."

Industrials: Pitney Bowes, where "a potential activist could look to separate the mailing business from digital software to reignite the company."

Information technology: A popular sector for the past five years, S&P Capital IQ points to Xerox, which has trailed the sector's stock returns for the past several years, and EMC, because of its "significant and valuable stake in VMWare Inc., which we see as undervalued."

Materials: Even though Peltz failed in his activist move against DuPont, the report believes the effort did some damage to the company that leaves it vulnerable.

Telecommunication: Services company Level 3 is vulnerable due to major shareholders Southeastern Asset Management and Temasek taking a bigger hand in a company poised to sharply increase its free cash flow.

Utilities: Exelon, which has seen "dramatic stock price underperformance in the past five years" and potential to separate out its unregulated assets.