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Following Activists to Better Stock Returns in a Flat Market

Given the current macro conditions and expectations for a flat market ahead, investors can look to activists to unlock value in turnaround stocks. Here’s how.

empty boardroom, activist investors

After the sharp slide in stock prices last year, combined with a complex macro environment this year, the outlook for broad gains is mixed. Economic growth is slowing with the potential to dip into a recession, while corporate earnings seem poised to decline from a year ago. The Federal Reserve remains determined to keep interest rates in the 5.0% range, or higher, as well as trim its bloated balance sheet, to combat inflation – which dampens the prospects for higher valuation multiples. Predicting market returns is notoriously unsuccessful but it’s fair to say that investors need to look beyond hopes for a mega-cap tech stock rebound.

Where can investors find stocks that can drive stronger returns even if the market goes nowhere? One source is to find out-of-favor companies that have attracted the attention of activist investors. Activists focus on turning underperforming stocks into winners. These highly specialized investors take ownership positions in laggards, then engage with the company leadership to make meaningful positive changes to the company’s strategy, management and profitability.


Companies have two basic resources: revenues and assets. Revenues are produced by selling something of value and are a source of cash for the company. Assuming that the value proposition is worthwhile and is producing reasonably stable revenues (activists tend to avoid companies with weakening revenues), activists can drive changes to how the company uses the incoming cash. Is the cash being efficiently allocated to drive more revenues and value to new and potential customers? Are manufacturing or services being produced efficiently enough? Is the company keeping its overhead costs under control? How productive are the dollars being re-invested in keeping offerings relevant and sufficiently profitable?

Activists also focus on assets. The most important asset for most companies is their talent base. Is the leadership providing sufficiently focused strategic and tactical direction and oversight? Are the right people in place to execute the company’s strategy? Activists look at other assets, like real estate, brands and business lines to evaluate whether their value is being fully realized or if they might be worth more if owned by someone else.

If properly executed, an activist-led turnaround can be remarkably successful. In 2017, activist investor Trian Partners exerted intense pressure on Procter & Gamble (PG), leading the previously moribund shares to drive higher in a market-beating surge that is still underway.

2 Stocks with Interesting Activist Campaigns

Matthews International (MATW) - $1.1 billion market cap – This mini-conglomerate owns three completely unrelated businesses: gravestones and caskets, packaging and branding, and industrial warehouse technology. Its acquisition strategy has been a dismal failure, leaving its shares unchanged over the past 18 years. One problem appears to be leadership: the current CEO has been at the helm since 2006. Activist investor Barrington Capital is pressing for major changes, including new leadership, a board refresh and a turnaround/sale of its packaging operations. The shares trade at a discounted 13.1x estimated 2023 per share earnings. This stock appears to have considerable potential should its value be unlocked by the activist.

Bayer AG (BAYRY) - $61 billion market cap – Based in Germany, Bayer is one of the world’s largest companies with revenues of nearly $55 billion. Its products include pharmaceuticals, over-the-counter consumer health products, and agricultural products (seeds and pesticides). Its 2018 acquisition of Monsanto resulted in the disastrous assumption of immense liabilities related to alleged cancer risks in its Roundup pesticide. This and other issues led to the early departure of the CEO last year. Activist investors Temasek and Inclusive Capital Partners (led by highly regarded Jeff Ubben), are pressuring the company to appoint a capable outsider as the new CEO. Other activists, including Bluebell Capital Partners, are calling for a break-up of the company. With the shares trading at less than half their pre-deal price and valued at only 7.3x estimated 2023 per share earnings, Bayer could be an appealing bargain.

Two strategies which I oversee focus exclusively on buying shares of out-of-favor, publicly traded companies. Our current recommendation lists include several companies with ongoing activist campaigns helping drive shareholder value. To learn more, subscribe to Cabot Turnaround Letter today!


Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.