Coronavirus Sell-Off A Major Opportunity For Activist Investors
The recent market volatility and coronavirus-induced sell-off create an ideal opportunity for activist investors, who are value investors at their core, CNBC contributor and 13D Activist Fund founder Kenneth Squire said Friday on CNBC's "Fast Money."
What Happened
Activist investors have a larger pool of companies to get involved with, and the recent weakness makes it easier to identify poor management teams, Squire said.
This gives activist investors an opportunity to "create their own catalyst" to close the valuation gap, he said.
Periods of stock market weakness also work in activists' favor, as it is typically easier to find support and "get their agenda implemented," he said. Fellow investors are more eager to lend support to activist campaigns, especially if they are losing money on the stock during the downturn.
Why It's Important
Even if an activist holds the upper hand in the current environment, it is difficult to push a company like Apple Inc. (NASDAQ: AAPL) to enact any changes, Squire said. The "best" activism is reserved for smaller and mid-cap companies that are typically less liquid and have an entrenched board of directors or operational issues, he said.
What's Next
Business software company CommVault Systems, Inc. (NASDAQ: CVLT) was identified by Squire in a CNBC.com article as a name to watch after activist investor Starboard Value amassed a stake, nominating four directors to its 11 person board.
A company like CommVault is falling short of its potential, with an operating margin in the mid-teens versus a 25% target, he wrote. Starboard could bring in a more disciplined strategy and help lift margins north of 30%, according to Squire.
"This is a situation where stockholders could greatly benefit from someone coming in from the outside to instill cost discipline," Squire wrote.
"The best way to accomplish this would be through a board refreshment, and this is a board that can use refreshing — three of the four directors up for re-election have an average tenure of 17 years."
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