ride shotgun with the world s top activist ......ride shotgun with the world’s top activist...

RIDE SHOTGUN WITH THE WORLD’S TOP ACTIVIST INVESTOR

2RIDE SHOTGUN WITH THE WORLD’S TOP ACTIVIST INVESTOR

RIDE SHOTGUN WITH THE WORLD’S TOP ACTIVIST INVESTORHow would you like to own stocks that are not only loaded to the gills with upside, but also come fully equipped with the world’s most successful investors on board?

I’m talking about arrogant, aggressive, smart, shrewd, results-oriented people rattling upper management’s cage, every day.

Bill Belichick-style motivators who demand performance, and will accept no less than perfection.

In finance, we call such people “activist investors.” And we call investing in such stocks “activist investing.”

Why do I bring this up?

It’s simple, really...

Because activist investing has enjoyed rank as the top-performing strategy among hedge funds for several years running.

In fact, activist firms double the returns of conventional hedge funds.

Knowing this, wouldn’t it be foolhardy to ignore the maneuverings of well-known activists?

You bet! Which is precisely why we’re going to use this strategy to buy three stocks that aren’t just loaded with upside potential, they also have the world’s top activist propelling them higher.


THE GREEDY HEART OF AN ACTIVIST INVESTOR...An activist investor is someone who buys a significant stake in a public company, and then tries to influence change within that company.

Their goal is simple: To unlock a company’s unrealized potential.

For example, I’m hearing some chatter among Wall Street insiders that Whole Foods Market (WFM) is primed for the arrival of an activist.

It makes sense, too. Despite the fact that Whole Foods is still viewed as the preeminent leader in the organic groceries niche, shares have suffered a 38% drop so far this year. What’s more, increased competition, lawsuits, and poor earnings have plagued the company throughout.

If an activist believes that he or she owns the winning recipe for a turnaround, a huge stock purchase could be right around the corner for Whole Foods.

So who are the most high-profile activists?

Well, billionaire investor, Carl Icahn, is probably the best-known one.

But other players include Kirk Kerkorian, Bill Ackman, Eddie Lampert, and Nelson Peltz.

SHOTGUN OR RIFLE?Now, the easiest way to position yourself alongside activist investors is to buy a brand-new ETF called the Global X Guru Activist ETF (ACTX).

The fund is comprised of 50 companies in which an activist is currently present.

Some popular companies in the fund include: Microsoft (MSFT), Halliburton (HAL), FedEx (FDX), and McDonald’s (MCD).

While I love the fund’s underlying theme, the problem is that buying it would represent a “shotgun” approach to activist investing.

Instead, I always prefer to take a “rifle” approach. That is, we home in on two or three of a specific activist’s targets. Ones that I believe represent the biggest opportunities for gains.

To do so, we need a patron saint. Someone within this lucrative niche of the market who’s crushing it in terms of earning oversized returns.

Well, we’ve found our idol. That person is activist investor Jeffrey Ubben.

OUR PATRON SAINT PREFERS A PROD OVER A PUNCHUbben is the Founder, Chief Executive Officer, and Chief Investment Officer of ValueAct Capital. With Ubben captaining the ship, the ValueAct fund acquires significant ownership stakes in companies that he believes are tremendously undervalued.


Ubben says he holds a portfolio of about 15 to 20 distressed companies, one-third of which he actively influences from inside the boardroom.

And while Ubben is still plenty active with the other two-thirds of the companies in his portfolio, his influence comes more from outside the boardroom.

Now, it’s easy to think of wealthy activists as brash, confrontational corporate bullies. And many of them are.

But Ubben is different. A key hallmark of his approach is to avoid the well-publicized, contentious nature of activist investing. In 2012, he told CNBC in 2012, “We don’t come in with guns blazing. Our goal is to not come in with an agenda, but to lead a fact-based decision-making process. And boards will respond really positively to a not-emotional conversation.”

He says his methods are “as constructive as they can possibly be.”

So how’s this approach working out for him?

Well, he’s not our patron saint for nothing!

ValueAct recently sold 4.2 million shares of Valeant Pharmaceuticals (VRX) between $219 and $230 per share. Ubben bought the shares at an average cost of $11, representing an incredible 2,100% return.

In this case, Ubben influenced Valeant’s business from inside the boardroom, having sat on the board from October 2014. In fact, ValueAct has had at least one of its employees on Valeant’s board since 2007.

This was no anomaly, either. Ubben has definitely proved he has the Midas touch. His portfolio continues to crush the performance of the S&P 500, year in and year out.


Here’s a list of ValueAct’s current holdings.

Now, I know it’s unreasonable to buy them all. So I’ve whittled the list down to the three best.

ACTIVIST INVESTMENT #1: AGRIUM INC. (AGU)Founded in 1931, Calgary-based agriculture company Agrium Inc. (AGU) produces farming products such as seeds, fertilizer, crop nutrients, and crop protection goods and distributes them to farmers across the world.

Suffice to say it’s a critical business.

ValueAct’s interest in Agrium dates back to October 2014, when the fund bought $850-million worth of Agrium shares and revealed that it owned 5.7% of the company.

That 5% threshold indicated that ValueAct wanted to be proactively involved with Agrium management.

But ValueAct’s approach is the polar opposite of the brutal 10-month battle that fellow activists Jana Partners waged with Agrium three years earlier. In that case, Jana crashed through the doors with guns blazing and demanded that the company be broken up.

It lost amid intense opposition from Agrium.

By contrast, ValueAct bought Agrium shares for “investment purposes” and is working quietly behind the scenes to extract more value from the existing business.

It’s working like a charm.


Agrium Vice President of Investor Relations Richard Downey told Canada’s Financial Post that ValueAct is “pleased with the direction of management.”

So pleased, in fact, that ValueAct upped its stake in Agrium by 25% in the second quarter. As of June 30, it held 10,003,451 Agrium shares. That’s 7% of the company and 5.6% of ValueAct’s total portfolio.

You should add it to your portfolio, too.

WHY YOU SHOULD BUY AGRIUMOther compelling factors for Agrium include...

Market Leader: With over 1,500 wholesale and retail locations in Canada and the United States alone, Agrium boasts extensive coverage. Indeed, Agrium owns almost 20% of the U.S. retail crop and fertilizer market – more than double its closest rival.

The numbers are even higher internationally, with the company also pretty dominant in Australia and South America.

Over the past few years, Agrium has also acquired 261 smaller firms in the sector, which has added $1.6-billion worth of sales, according to Motley Fool.

Overall, revenue has grown at an 18% compound annual growth rate (CAGR) over the past 10 years, while earnings per share (EPS) has notched a 21% CAGR.

Well Diversified: I won’t run you through all the crop, seed, and fertilizer products that Agrium offers... but it’s a lot. Diversification is always beneficial.

Buy on the Dip: While Agrium shares have dipped over the past few weeks, the stock is now in oversold territory and this is a good opportunity to buy on the pullback. There’s excellent downside protection, too...

Income and Protection: In January, Agrium hiked its target dividend payout ratio to between 40% and 50% of free cash flow. And just a few weeks ago, it announced a 12% increase to its dividend. It pays out $3.50 per share annually – a 4% yield.

CEO Charles Magro expects cash flow to shoot higher next year, as the company’s expansion plans are completed. Over the next year, Agrium will also buy back 5% of its shares.

Jeffrey Ubben and ValueAct know what they’re doing here. There are compelling reasons to own Agrium and great value in the stock on a rebound from its recent dip. I suggest you follow them in.


ACTIVIST INVESTMENT #2: AMERICAN EXPRESS (AXP)The best way to frame this investment is through a chart.

Take a look at the performance of America’s three leading credit card companies – Visa (V), MasterCard (MA), and American Express (AXP).

If you’re a Visa or MasterCard shareholder, you’ll rejoice over what’s pictured on the next page.

American Express shareholders? Not so much.

American Express has chronically underachieved for the last two years. The company’s malaise can be easily explained by two recent blunders.

Blunder No. 1: Instead of settling a massive antitrust case with the U.S. government (like Visa and MasterCard did) American Express chose to battle the feds in court. Bad move.

Earlier this year, a U.S. District Court judge sided with the Justice Department, ruling that American Express was exhibiting anticompetitive behavior by refusing to allow merchants to promote other cards or offer certain discounts.


Blunder No. 2: American Express’ 16-year-old partnership with Costco ended – a partnership that contributed to 8% of AXP’s sales and 20% of its loan portfolio.

To put that into greater perspective: Costco has 671 locations around the world and is the second-largest retailer in the United States behind Wal-Mart. The death of the Costco deal impacted one in 10 AXP cardholders. Ouch. Still, with over 50 million AMEX cards in circulation, accounting for $684 billion in transactions in the United States alone, the company does have tremendous upside appeal.

Any idea who can unlock this company’s true value? I do!

OUR PATRON SAINT TO THE RESCUEJeffrey Ubben recently purchased a $1-billion stake in American Express. And when Ubben shows up, good things tend to happen.

Wouldn’t you know it? Positive news is already materializing.

After its heart was broken by Costco, American Express went looking for a rebound. Its eyes were set on Sam’s Club’s 650 locations.

The company got what it wanted. On the merits of a blockbuster deal, Sam’s Club started accepting AMEX cards on October 1.

As you’d expect, a marketing promotion was part of the deal. For the month of


October, American Express cardholders will receive a one-time $25 statement credit when they use their AMEX to open a new Sam’s Club membership.

Will the Sam’s Club deal alone push American Express shares higher? Probably not.

But Ubben’s track record warrants consideration. Not to mention that American Express has another influential shareholder you might have heard of – a man named Warren Buffett, who owns $11.7-billion worth of shares.

Do you have the guts to pass on an Ubben/Buffett tag-team effort?

ACTIVIST INVESTMENT #3: TWENTY-FIRST CENTURY FOX (FOX)I may well have saved the best for last here.

My final recommendation from Jeffrey Ubben’s portfolio of stocks is Twenty-First Century Fox (FOX).

The struggling entertainment company is in bad need of a Hollywood ending. Questionable decision-making and bad timing has the company cast in the role of the laggard lately.

Take a look at the chart, which pits Lions Gate Entertainment (LGF) against Twenty-First Century Fox, and you’ll notice it isn’t even close.


Twenty-First Century Fox operates in three divisions:

#1: Cable Network Programming: This consists of the production and licensing of programming distributed primarily through cable television systems, direct broadcast satellite operators, telecommunication companies and online video distributors in the United States and internationally.

#2: Television: This consists of broadcast network programming in the United States and the operation of 28 broadcast television stations.

#3: Film Entertainment: This consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing, and the production and licensing of television programming worldwide.

So far this year, Twenty-First Century Fox has seen its sales slide by 17%. Such a decline shouldn’t catch anyone off guard, though, since television viewership is way down.

According to Ad Age and Nielsen stats, TV viewing among adults age 18 to 24 was down 20% over the first two nights of the 2015 fall season compared to last year. Male viewing within that same age group was down 25%.

Movie ticket sales, however, are on track to beat last year’s total box office gross of $10.3 billion.

So it’s not all bad being in the entertainment industry, right? Enter our patron saint, Jeffrey Ubben.

Back in August 2014, Ubben disclosed a $1.4-million stake in Twenty-First Century Fox. But news recently broke that Ubben has been nominated to the company’s board.

The appointment is part of a broader deal in which ValueAct agreed not to launch a proxy fight or other hostile action against the company in exchange for Ubben’s seat.

But now that Ubben is in the boardroom, how does he plan to fix Twenty-First Century Fox? Well, he’s being incredibly tight-lipped for now. But the fact that he’s on the board is reason enough to buy shares.

Rupert Murdoch and Lachlan Murdoch, Executive Chairmen of Twenty-First Century Fox, said, “Jeff will bring to our Board a great perspective as a global investor and a shared belief in building long-term value for shareholders.”

If Ubben can unlock even 25% of what he did for Valeant Pharmaceuticals shareholders, you’ll start talking with a slightly British accent, a la Madonna – even though you don’t have a single ancestor with ties to the United Kingdom!

Is there any better sign of becoming suddenly rich?


GET ON BOARD WITH ACTIVISTS… AND JEFF UBBENTo sum up, activist investing funds are doubling the returns of traditional funds. Within this group of activist investors, Jeffrey Ubben of ValueAct Capital is our patron saint.

Ubben holds a portfolio of about 15 to 20 distressed companies, one-third of which he actively influences from inside the boardroom.

His track record is extraordinary, highlighted by a 2,100% return on Valeant Pharmaceuticals and 186% on Adobe Systems (ADBE).

On such merits, I strongly recommend that you follow his lead and buy the top three companies in Ubben’s portfolio that he’s currently trying to influence: Agrium Inc. (AGU), American Express (AXP), and Twenty-First Century Fox (FOX).

Onward and Upward,

Robert Williams Founder, True Alpha

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2016

ride shotgun with the world s top activist ......ride shotgun with the world’s top activist...

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