Let’s start with the most straightforward reason why shareholder activism should matter to you. Because it gives you a chance at outsized returns. You may even get a free lunch as shareholder activist investments tend to have below-average downside risk.
1. American International Group – AIG 📈
3. Janus Henderson Group – JHG 📈
4. Green Brick Partners – GRBK 📈
5. Chipotle Mexican Grill – CMG 📈
What is shareholder activism instigated by activist investors?
Shareholder activism is commonly referred to as a campaign run by an activist investors using a material equity stake in a company to push for changes. The objective of any campaign is to boost shareholder value, often by 100% or more.
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Proposed changes can focus on wide range of topics. In most instances, however, they focus on improving a company’s operational performance, long-term strategy or changes to the corporate structure, such as spin-offs or sales.
The objective behind shareholder activism? 💰💰💰
Any of the angles used by activist investors shares the objective of creating shareholder value, in other words to make money for shareholders. Since campaigns tend to run over multiple years and require the involvment of large teams – think analysts, lawyers, public relations experts – the target return is generally well in excess of 100%.
Famous names in shareholder activism
The best known activist investors are Paul Singer (Elliott Advisors), Carl Icahn, Bill Ackman (Pershing Square), Nelson Peltz (Trial) or Dan Loeb (Third Point).
Nelson Peltz is renowned for his activist campaigns at Disney, Procter & Gamble or Wendy’s.
Elliott is infamous for its tough approach, particularly in restructuring struggling companies and engaging in activist campaigns across various industries.
Third Point is famous for its sharp critiques and active involvement in corporate governance reforms, targeting companies like Yahoo and Sony.
How shareholder activism impacts retail investors
When a company is subject to shareholder activism, this impacts its shareholders, including retail investors, in a number of ways.
Improved corporate governance
In a majority of campaigns activist investors push for better corporate governance practices. They may ask for Board seats to be filled with more competent Directors. Digitalization, cyber security, AI and climate change are key topics that require new skillsets from compay directors. Activist investors will push for greater accountability and close links between remuneration and performance. Once implemented, such changes reduce risks associated with mismanagement and enduring business underperformance.
Drive business performance
Activist investors typically target companies that exhibit areas of underperformance and that are not realizing their full potential. By pushing for changes, such as cost-cutting measures, new growth strategies, divestitures of non-core assets, or restructuring, they can help unlock value and improve the company’s financial performance. If successful, this leads to higher stock prices, benefiting all of the company’s shareholders, inclduing retail investors.
Influence on strategic decisions
Whereas retail investors often have limited power to influence corporate decisions directly, activist investors immediately have top management’s ear. Therefore, they can advocate for strategic decisions that align with the interests of all shareholders, including retail investors. This can include mergers and acquisitions, changes in business strategy, or even returning excess cash to shareholders through dividends or stock buybacks
Shareholder activism techniques
Activist investors can employ both friendly and less friendly tactics. Supported by highly skilled legal teams, activist tactics range from private negotiations, public campaigns, proxy battles all the way to litigation to shape management’s decisions.
Our top 5 activist stocks right now
When reviewing top activist investors’ biggest bets, we applied a number quantitative and qualitative criteria in our research process. These are the most notable ones:
✔︎ Materiality: Holding makes up a very meaningful share of the activist investor’s portfolio
✔︎ Quality: Ziggma Stock Score > 80
✔︎ Continuity: No meaningful sale of shares by the activist investor in previous quarter
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AIG 📈
Activist investor: Third Point
% of activist investor portfolio: 3.42%
Quarter first owned: Q4/2022
Estimated entry price: $58
Ziggma Score: 88
2024 Price/Earnings: 10.4x
AIG is a global insurance company covering a wide range of property-casualty insurance, life insurance, retirement solutions, and other financial services to customers in more than 80 countries and jurisdictions.
Third Point’s angle on AIG
Third Point has demanded several strategic actions to enhance shareholder value and streamline the company’s operations. Third Point wants AIG to continue its transformation into a more focused insurance player by divesting non-core assets and improving its operational efficiency. Specifically, Third Point has supported AIG’s initiative to separate its life and retirement business, Corebridge Financial, from its property and casualty operations. This would turn it into more of a “pure-play” property and casualty insurer with the ultimate goal of unlocking value and improving the overall performance of AIG.
Pinterest – PINS 📈
Activist investor: Elliott Advisors
% of activist investor portfolio: 5.5%
Quarter first owned: Q2/2022
Estimated entry price: $23
Ziggma Score: 94
2024 P/E: 29.6x
Pinterest is a visual discovery and bookmarking platform where users can find and save ideas ranging from recipes and home decor to fashion and travel. The company generates revenue primarily through advertising by allowing businesses to promote their products and services via visually engaging “Promoted Pins” that appear in users’ feeds.
Elliott’s angle on PINS
Pinterest’s management has been getting a considerable push from Elliott Advisors. Elliott has demanded several strategic changes to improve the company’s operations and performance. These demands include enhancing Pinterest’s monetization strategies, improving user engagement, and optimizing operational efficiency. As part of its campaign, Elliott has managed to obtain a board seat for one of its directors, Marc Steinberg.
Janus Henderson Group – JHG 📈
Activist investor: Trian Fund Management
% of activist investor portfolio: 13%
Quarter first owned: Q2/2020
Estimated entry price: $29
Ziggma Score: 87
2024 P/E: 11.3x
Janus Henderson Group is a leading, global asset manager with $353B in assets under management. The group provides services to institutional, retail clients, and high net worth clients. The group manages separate client-focused equity and fixed income portfolios.
Trian’s angle on JHG
Nelson Peltz’s Trian primarily focuses on driving strategic and operational improvements within the company. This includes encouraging potential mergers or acquisitions to enhance scale and competitiveness in the asset management industry, which is facing significant changes due to competitive pressures. Trian has also influenced governance changes at Janus Henderson, resulting in the appointment of Nelson Peltz and Ed Garden to the Board of Directors. These appointments are part of Trian’s broader strategy to provide fresh perspectives and assist in evaluating new market expansions and product offerings.
Green Brick Partners – GRBK 📈
Activist investor: Greenlight Capital
% of activist investor portfolio: 28.9%
Quarter first owned: Q2/2007
Estimated entry price: $10
Ziggma Score: 98
2024 P/E: 7.7x
Green Brick Partners is a diversified homebuilding and land development company based in Plano, Texas. The company operates primarily in Texas, Georgia, and Colorado, focusing on the development of residential communities.
Greenlight’s angle on GRBK
Greenlight Capital, led by David Einhorn, is GRBK’s largest shareholder with a 20% stake. Greenlight Capital’s key asks include driving growth and improving profitability. Greenlight is known for its particular focus on financial discipline for the benefit of shareholder value
Chipotle – CMG 📈
Activist investor: Pershing Square
% of activist investor portfolio: 18.5%
Quarter first owned: Q3/2016
Estimated entry price: $435
Ziggma Score: 85
2024 P/E: 59x
Chipotle Mexican Grill is a fast-casual restaurant chain known for its focus on fresh, high-quality ingredients and customizable Mexican-inspired dishes such as burritos, bowls, tacos, and salads. The company is known for its emphasis on sustainability and ethical sourcing practices, aiming to serve “Food With Integrity.” Chipotle appeals to health-conscious consumers and those seeking quick, flavorful meals.
Pershing’s angle on CMG
Pershing Square, led by Bill Ackman, has pushed for various strategic and operational improvements to drive the company’s growth and enhance shareholder value. Notable initiatives are to improve Chipotle’s digital and delivery platforms, expand its menu, and optimize operational efficiency to boost profitability and customer satisfaction
Moreover, Pershing Square has encouraged Chipotle to focus on expanding its footprint through opening new locations and enhancing its customer experience to maintain its competitive edge in the fast-casual dining market.
Disclosure
Ziggma team members presently hold shares in some of the stocks mentioned in this article.
Important Notice
This article is not investment advice. We cannot predict whether these stocks will go up or down. Our analysis is centered entirely on publicly available information. Please do your own homework prior to making an investment decision.
Investors should be aware that activist investors’ 13F filings may not give a complete and timely picture of a firm’s holdings. The size of a firm’s holding may differ between the time of the filing and when this article was published.