With the market having gone up so much since March, undervalued securities are becoming harder and harder to find. One potential source of long-term value is to look at positions held by investment pros that they continue to load up on.
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A Diverse Group
Investment firm Steel Partners recently increased its stake of technology firm Adaptec (Nasdaq:ADPT) to nearly 15.4 million shares according to Barron's weekly 13D Filings reports. That brings Steel's ownership interest to nearly 13% of the company. A quick look at the balance sheet might reveal why. Adaptec currently trades for $3.19, and has nearly that much in net cash per share. In other words, you are getting all other assets for next to nothing. (For more, see Spotting Cash Cows.)
Cascade Investment, which is the private investment arm of Microsoft (Nasdaq:MSFT), Chairman Bill Gates recently bought more of shares in Mexican media company Grupo Televisa (NYSE:TV). Interestingly, the Bill and Melinda Gates Foundation also bought shares, suggesting some very strong conviction on this bet. The recent purchases were made at prices over $20 a share. The stock has since pulled back to just above $19. This a $11 billion company currently fetching 19-times earnings and yielding 3.2%
Intertape Polymer Group (NYSE:ITP) saw existing activist group KSA Capital Management continue to buy. KSA is a financial services firm with over 70-plus years advising consumer goods and retail industries. ITP is a company that focuses on making tapes and films that are used in consumer packing products. It's one of those companies not many people know of as it focuses on a niche and often forgotten part of consumer goods. Shares fetch $1.75, valuing the company at $102 million. Net debt is over $200 million, yet tangible book value is nearly $4 per share. The debt level is alarming but the presence of activists investors with an equity stake is a strong sign. (For related reading, see Activist Investors: A Good Or Bad Thing?)
Investing alongside activists or invest pros can often be a rewarding bet. Often times, they bring more experience and resources to the table than many retail investors can. Plus, by owning equity, they are aligned with shareholders. However, activists aren't perfect either, so there is no guarantee of investment success. Finally, seeking change can take time, so you have to prepared to be patient.
The Bottom Line
Tagging along seasoned investors is a wise strategy, but not a ticket to investment success. Research the ideas, so you too can make an intelligent rational decision. (For more, see Could Your Company Be A Target For Activist Investors? and Activist Hedge Funds.)
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