From 2007 through 2019, I wrote the weekly Activist Spotlight column at Barron's. I have now joined the CNBC team and will be writing the weekly update exclusively for CNBC readers. Due to the coronavirus crisis we have delayed the launch of this column, but we believe now is the right time to start focusing on company fundamentals and catalysts.
Shareholder activists like Bill Ackman are value investors who identify cheap companies and create their own catalysts to close the valuation gaps. With activist stocks, you do not necessarily have to wait for the market to recognize the value in a company — the activist agenda, if implemented correctly, should close the valuation gap.
For several reasons, shareholder activism tends to flourish after market sell-offs and in down and flat environments.
- First, when stocks are down 20% to 40%, it gives value investors like activists many more opportunities from which to choose. Activists' screens are going crazy right now, filled with stocks they like, but never thought they would have the opportunity to buy at these levels.
- Second, it is easier than ever to implement activist agendas. In down markets, it is harder for poor management to hide. And with many other shareholders under water in their portfolios, it is easier to get shareholder support for activist campaigns.
- Third, in flat markets investors cannot rely on the market beta to generate returns as they did during the lengthy bull market we just exited. In such an environment, catalysts and activism become much more value.
So, we will be providing interesting activist opportunities and discussing timely topics regarding shareholder activism and corporate governance in the new column.