Activist hedge-fund investors, like Carl Icahn, are shareholders who refuse to vote with their feet. They feel compelled to say something if they see something. Their approach can roil egos in the boardroom and even generate angst with traditional long-only asset managers.
On Tuesday, activists gathered at the Plaza Hotel in Midtown Manhattan for the 10th annual 13D Monitory Investor Summit. 13D Monitor is a firm that follows activist situations. It even runs a mutual fund based on disclosed activist positions—it’s the 13D Activist Fund (ticker: DDDIX). The conference included dozens of speakers and hundreds of investors. Barron’s attended and three situations pricked our interest: KAR Auction Services (KAR), Wyndham Hotels & Resorts (WH) and Pioneer Natural Resources (PXD).
KAR Auction Services rose 1.8% Tuesday after activist hedge fund Starboard Value disclosed a stake in the used-car seller. Starboard’s Jeff Smith sees value in spinning out KAR’s salvage business, calling it a hidden asset.
That may be true, but KAR isn’t a poor-performing business. In fact, KAR’s stable business is one reason this situation appeals to us. KAR stock has returned more than 16% a year on average for the past five years, while the Dow Jones Industrial Average has returned 12.7% on average over the same span. That’s quite an accomplishment for an auto-industry stock. The Russell 3000 Auto & Auto Parts Index has returned 2.8% a year on average over the past five years.
Next up, Impactive Capital’s Lauren Taylor Wolfe pitched the crowd on Wyndham Hotels, which owns several economy-hotel brands. It was spun out of Wyndham Destinations (WYND) in June 2018 and since then Wyndham Hotels stock has declined about 17%. The Dow is up 7% over the same span.
Wolfe thinks Wyndham is a good investment for the current environment. About 50% of reservations are walk-ins and that is good in a world with Airbnb in it. She also believes there is less risk of oversupply in the economy segment of the hotel industry. More capacity is being built in the luxury-hotel space.
She expects Wyndham to generate more than $5 in free cash flow per share by 2022. That means Wyndham shares could hit more than $100 based on the free cash flow yield of other hotel operators.
Finally, Corvex Management’s Keith Meister is excited about M&A in the Permian basin after Chevron (CVX) bought Anadarko Petroleum (APC) last week. Meister said he would be surprised if Diamondback Energy (FANG), Pioneer Natural Resources and Concho Resources (CXO) remained independent in coming years.
He could be right about all three, but Pioneer just replaced its CEO, bringing the founder, Scott Sheffield, out of retirement at age 66. It isn’t uncommon that when a company has an older CEO and no succession plan, the situation could generate a sale sooner rather than later.
It’s always a treat to listen to activist investors detail their thought processes.
Some other themes were evident at the conference, too. The world of activism is changing. Traditional asset managers are warming to the activist approach, a historical shift. Wellington Management, for instance, went public with its opposition of the Bristol-Meyer Squibb (BMY) acquisition of Celgene (CELG) earlier this year. Perhaps Wellington feels pressure to differentiate its approach because of the growth of passive, low-cost mutual funds.
Whatever the case, activism isn’t going away—it is growing. That is good for investors that can use activist research as a screen for new, high-quality investment ideas.
Write to Al Root at firstname.lastname@example.org