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Debunking Probable Activist Targets

Mar. 31, 2015 1:53 PM ETBWXT, NSM, AWI, NSP
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"Highly Probable Activist Investing Targets," When you read such a title, you think, this is going to include some potential activist targets, right?

At least that's what I thought, but not the case. It's still a good post over at Valuewalk, but can be a bit misleading for investors. I was hoping for stocks that had a high probability of being targeted by activists.

When you look at the highlight of this article, which is a PDF of prime activist targetswith a $1bn plus market cap (posted below), it insinuates we could see some activist intervention or "shakeup" of the stocks listed given recent buying.

But, in truth, that's just not the case for many of the names on this list -- with most of the stories already being played out (read: easy money already made). It could be that they're just a little behind in their analysis.

But let's have a look, starting line by line.

1st is Babcock & Wilcox ($BWC). It already has three activist investors, one that has filed a 13D, so it's not necessarily a probable target. Blue Harbour filed a 13D way back in May of 2014 -- it owns roughly 10% of the company and the position makes up about 10% of its portfolio. Kingstown Capital is another hedge fund activist here, owning 1.2% of the company (11th largest holding), then there's Starboard Value, which owns 3.6% of the company (8th largest holding). Babcock & Wilcox has alreadydecided to separate the company into two, so it's more of a "job well done," by the activists here.

2nd is Clean Harbors ($CLH), which doesn't have any activists, in the conventional sense (read: 13D filings), but it does have Blue Harbour owning 2.4% of the company (with Clean Harbors being its 14th largest position) and Starboard Value owns 2.25% of the company (its 12th largest holding). Now, Southeastern Management and Relational are also major owners, but Southeastern isn't an activist per se (it's more a follower of activists, a piggybacker if you will) and Relational is winding its fund down. This could actually become a target, especially with Blue Harbour, where it's been an activist at a similar company, Progressive Waste ($BID) for a couple years.

3rd is Hertz ($HTZ), which is probably one of the most well-told activist stories (hedge fund hotels) out there. Jana Partners and Carl Icahn both have 13Ds filed. Icahn became an activist back in August 2014 and Jana joined in October. Fir Tree is also an owner of Hertz, with a 3.3% stake.

4th is Northstar Asset Management ($NSM). Now, there's three activists hedge funds that collectively own 2.6% of the company, so there's not much to the story here. Hopefully, activists have learned their lesson in the space after getting burned byOcwen Financial ($OCN). In any case, we think the analysis overlooks a key activist in Northstar, which is Orange Capital -- owning over 2% of the company on its own.

5th is Armstrong Worldwide ($AWI). ValueAct actually went active with a 13D filing back in August of 2014. They own almost 17% of the company and are a relatively quiet activist (it's the fund's 13th largest position). Then there's Engaged Capital, which owns a very small portion of the company. So, there's not much to the story here.

6th is Insperity ($NSP). Starboard Value went active back in January and shares are already up 45% since then. The company recently settled with the activist fund, giving it 2 board seats and agreeing to sell its corporate jets. Then there's Stadium Capital, which has dumped 40% of its shares in the last two months. Easy money has, again, been made here.

Alright, alright, that's enough for one sitting. Check back later as we continue to work our way down the document. Our key thesis is that it shouldn't be called probable activist targets when it's merely activist targets where activists are getting more active. Later we'll explore actual activist targets, which can be found if you dig a little deeper.

Originally appeared at Stockpucker here.

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