Across the globe, there are now dozens of fund managers that can
put billions of dollars into play. These folks made their fortunes
and reputations when their
base was much smaller. They often targeted small, unknown companies
and were able to double or even triple their money.
Yet as their asset base has grown, they can't go after small
game anymore. Even if successful, a small investment can never
really move the needle. So these same money managers, Warren
Buffett included, are now hunting much larger prey.
Over the years, I've been tracking insider buying and noticed
that the buying lists are no longer dominated by company executives
but instead by these big-time fund managers that build major
positions in a stock. (Once they own 5% of company stock, they must
file each subsequent transaction with the SEC.)
What are these big-game hunters up to? And more important, can
you make money by riding herd with them?
The answer is a qualified yes.
Carl Icahn may be considered to be one of the most aggressive
practitioners of big-game hunting. He made a killing in 2008 when
his $400 million in investment in biotech firm Imclone Systems
turned into a $700 million stake when Bristol-Myers Squibb
announced plans to buy the company.
But not every move works out. When Icahn offered to buy
in July 2011 for $80 a share, he found little interest from the
company. A few months later, he walked away.
Yet there are clear examples where you can
by riding herd with these big investors. Here are three
opportunities I'm watching...
1. Cerberus Capital
This company provides satellite-imaging services to the U.S. and
foreign militaries along with a range of commercial clients.
Cerberus's Stephen Feinberg had built a 10% stake in the company in
late 2010 while
were in the low $40s. But questions about defense department
funding have pressured this stock, though Feinberg is undeterred,
acquiring shares at ever lower levels, and it now sits at just
This stock is now at fresh 52-week lows on word that a key rival
will see the bulk of 2012 funding for a key 2012 government imaging
contract, known as EnhancedView.
Satellite-imaging contracts are split between rivals GeoEye and
. Late last week, GeoEye announced it would not get further
near-term extensions for its part of the EnhancedView contract -but
DigitalGlobe would. The outlook for 2013 and beyond is unclear, and
both firms could again get funding once the current government
budget impasse is resolved.
Here's where Feinberg can make some of his investment back. Each
firm has tried to buy the other to save costs and boost margins,
yet both parties have rejected each other's offers. Frankly,
DigitalGlobe is much larger and the more likely acquirer, and
Cerberus' Feinberg is wise enough to see that. He would likely
gladly unload his stake in GeoEye in the $20-25 range, even though
that price range is well below his first buying efforts. He likely
knows he'll never see $40 again for this stock. Still, you could
wind up having much better timing than him and scoop shares up at
these lower levels.
2. Neuberger Berman
This investment firm just announced that it holds a 5% stake in
this beleaguered office supply chain. At first blush, the appeal
might stem from the fact OfficeMax is worth less than $400 million
but has tangible
of almost $500 million. Yet Neuberger has no desire to take over
the company and instead just wanted enough clout to request the
• Seek shareholder approval before any "transformational
• Sell off the company's stake in
Boise Cascade (NYSE:
to shore up the
• Sell of the company's Australian and New Zealand
operations to raise even more capital.
Neuberger apparently believes that this stock will continue to
lag if its only charm is that it is below book value. Instead, with
or a big buy after those proposed asset sales could come new
investor interest in this stock, which has shed more than
two-thirds of its value since the start of 2011.
3. Ken Langone
Langone, one of the first backers of
Home Depot (NYSE:
, is worth more than $1 billion, yet he's spending a bunch of time
on this tiny $114 million (in
) e-commerce stock. He appears to own roughly 800,000 shares, and
keeps buying more with each passing month. He's Chairman, President
of the company, and it will be interesting to track his next moves,
now that he owns roughly $15 million of this micro-cap
So what is Geeknet? The company's website, thinkgeek.com,
carries a wide range of unique tech gadgets, many of which are
often hot-selling gifts during the holidays. Sales in this business
rose 50% in 2010, another 30% in 2011 and could rise another 15-20%
this year to about $140 million. It looks like Langone is building
a big position before many other investors (and potential
acquirers) take notice.
Risks to Consider:
Not all of these efforts pay off. Carl Icahn, for example, has
been on the losing end of several
Action to Take -->
The presence of a big shareholder is enough to spook a company's
Board into action. Moves to boost value such as returning cash to
shareholders can often be a victory for all parties concerned, and
it could pay to ride along with any of these three stocks as these
moves are contemplated.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.