In this article, we will take a look at the 15 Stocks Targeted By Activist Hedge Funds.
Shareholder activism continued at a record pace in 2024 as activist hedge funds pushed for strategic changes in various companies to unlock hidden value. In the first nine months of the year, 184 activist hedge fund campaigns were up and running, 26% above the four-year average. The surge came as new activists joined the fray and spearheaded 22% of the campaigns.
Why Was Shareholder Activism on The Rise?
A number of factors can be emphasized. One is the global economy cooling down. Although the US economy appeared to be on track to a soft landing, as many experts had predicted, economic growth remained timid, and other nations like Germany were on the verge of going into recession.
The rise of so-called ESG investing is another factor contributing to increased shareholder activism. Environmental, social, and governance, or ESG, is a relatively recent trend in which investors purchase stock in a company for its intrinsic value and because it performs well on ESG metrics. Some activist investors have positioned themselves as ESG-focused in the midst of this trend.
READ ALSO: 10 Best Penny Stocks to Buy for 2025 and 10 Best Stocks to Buy According to Billionaire D.E. Shaw.
Nevertheless, only 30% of the top ten activist investors accounted for the total campaigns in 2024, down from 46% in the same period in 2023. On the other hand, most of the campaigns were less successful in breaking into company boardrooms as management fought back.
Management pushed back on several campaigns even as activist hedge funds were forced to settle on management changes. Additionally, as investors’ newfound freedom to choose between management and dissident slates makes it easier to get representation on boards, the universal proxy card continues to lead to more settlements between activists and businesses.
Even though winning board seats isn’t the main goal of every campaign, the quantity of victories indicates how well businesses are defending themselves. Dissidents won 74 seats in the first half, compared to 93 in the same period in 2023. Activists only secured 11% of the seats they were vying for in US proxy elections, compared to 65% in 2023.
Similarly, a push for company sales by activist hedge funds hit a snag as buyouts throughout the year were scarce owing to the high interest rate environment. High interest rates made it difficult for companies to access cheap capital that they could use to complete acquisitions.
According to Jim Rossman, head of the Barclays advisory group, there hasn’t been much merger and acquisition activity in the past two years. The activists’ preferred method of obtaining value from a company’s stock is weakened as a result. The most frequent demand of activists is still M&A, but they are now more focused on altering a company’s board and management.
“Activism has become increasingly sophisticated as a tactic,” says Rossman, who sees firms hiring bankers, lawyers and private equity veterans. “There’s a greater depth of understanding on how to unlock value in companies.”
As corporate board nominations open in the new year, the pace of activism is expected to increase in the upcoming months. According to Rossman, activist demands for M&A may resurface in 2025 as private equity firms look to use their growing cash and their current holdings.
Activist hedge funds typically have minority, long interests in underperforming businesses that have significant potential for value development. Since value investors make up the majority of activist investors, they must first find undervalued companies.
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Our Methodology
To make our list of stocks targeted by activist hedge funds, we looked for companies that made the headlines in the context of renowned activist investors taking a position. We then ranked these companies based on their latest market capitalization.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
15 Stocks Targeted By Activist Hedge Funds
15. Wolfspeed, Inc. (NYSE:WOLF)
Company Market Cap as of December 31: $850.57 Million
Number of Hedge Fund Holders: 26
Wolfspeed, Inc. (NYSE:WOLF) is a technology company that focuses on silicon carbide and gallium nitride (GaN) technologies. Despite the growing demand for semiconductors and related technologies, it was one of the hardest-hit stocks in 2024. The stock ended the year down by 84% as it emerged as one of the stocks targeted by activist hedge funds.
The underperformance came despite growing demand for Wolfspeed Silicon carbide products as they offer greater efficiency and reduced system size in chip development. Wolfspeed, Inc. (NYSE:WOLF) remains well-positioned to benefit from the artificial intelligence market expansion, which is expected to fuel demand for SiC products.
Activist investor Jana Partners has already built a significant position in the semiconductor manufacturer. The hedge fund is urging the company to consider resolving the staggering erosion of shareholder value. In a letter to the board, the hedge fund touted Wolfspeed, Inc.’s (NYSE:WOLF) differentiated manufacturing capabilities that give it intrinsic value.
Jana Partners wants management to explore boosting share price by increasing gross margins. It’s also pushing for a potential sale of the device business and partial sale of the silicon wafer business to a strategic partner as one of the ways of unlocking hidden value. It also urged management to consider the sale of the company as one of the ways of unlocking value.
ClearBridge All Cap Growth Strategy stated the following regarding Wolfspeed, Inc. (NYSE:WOLF) in its Q3 2024 investor letter:
“We also exited long-time holding Wolfspeed, Inc. (NYSE:WOLF), a leading global supplier of silicon carbide substrate wafers and devices. After giving management ample time to ramp production at its new Mohawk Valley facility, we closed the position due to continued execution missteps and cyclical headwinds impacting electric vehicle, industrial and energy applications that have repeatedly pushed the company’s path to profitability further out.”
14. Fortrea Holdings Inc. (NASDAQ:FTRE)
Company Market Cap as of December 31: $1.67 Billion
Number of Hedge Fund Holders: 26
Fortrea Holdings Inc. (NASDAQ:FTRE) is a biotechnology company that provides biopharmaceutical products and medical device development services. It also provides outsourced R&D services to pharmaceutical, biotechnology, medical device, and diagnostics industries. It is one of the stocks targeted by activist hedge funds after underperforming in 2024. The stock was down by about 45%. Activist hedge fund Corvex Management took a stake in the company and started pushing for strategic changes.
Corvex Management launched a campaign agitating for the sale of non-core assets as one of the ways of unlocking value and ensuring focus on core business. It also reiterated that the stock should be worth $25 to $27 a share, focusing on improving the margin on earnings before income tax depreciation and amortization.
The activist hedge fund reiterated that Fortrea Holdings Inc. (NASDAQ:FTRE) should focus on improving its margins or become a target for buyers. Corvex is not the only activist hedge fund that owns a stake in the company. Starboard Value also acquired stakes in 2023 and reiterated plans to push for changes to boost margins, among other initiatives.
According to Starboard, Fortrea Holdings Inc. (NASDAQ:FTRE) is ideally positioned as a sizable and diverse international contract research organization, or CRO, offering drug and other research-management services to pharmaceutical, biotech, and medical device companies.
13. Upwork Inc. (NASDAQ:UPWK)
Company Market Cap as of December 31: $2.19 Billion
Number of Hedge Fund Holders: 24
Upwork Inc. (NASDAQ:UPWK) is a communication services company that operates a working marketplace that connects businesses with various independent professionals and agencies. The company’s work marketplace provides access to talent with multiple skills across a range of categories. While the stock was up by about 14% in 2024, it underperformed the overall market.
Consequently, activist investor Engine Capital acquired a 4% stake in the company and started agitating for a shakeup of the board. In a letter to the board, the activist hedge fund reiterated that management needed to fix the platform’s foundational issues. The activist hedge fund also reiterated that the company is underperforming its closest peer, Fiverr.
Engine Capital has since urged Upwork Inc. (NASDAQ:UPWK) to focus on simplifying its platform and enhancing user experience. Likewise, it wants the management team to prioritize cutting costs and growing its enterprise business.
Upwork Inc. (NASDAQ:UPWK) delivered impressive third-quarter results on November 8, 2024. Revenue logged in was up 10% year over year to $193.8 million, beating the consensus estimate of $182 million. Earnings also came above analysts’ estimates at $0.29 a share. The quarterly results were better than expected as the online employment marketplace integrated artificial intelligence features into its platform to help customers and freelancers complete projects. The number of clients engaging in AI-related projects on the platform was up 30%.
Pernas Research stated the following regarding Upwork Inc. (NASDAQ:UPWK) in its Q3 2024 investor letter:
“Upwork Inc. (NASDAQ:UPWK) is a leading global platform in the online freelance marketplace, connecting businesses with independent professionals (freelancers) for collaboration. The stock has fallen by approximately 85% from its peak due to concerns over slowing growth and fears of AI disruption. However, our analysis suggests these concerns are overstated. The growth slowdown is primarily due to temporary cyclical factors, while the long-term trend of businesses increasingly turning to skilled freelancers remains strong. Although market sentiment views Upwork’s business case as weakening, we see it as strengthening. We estimate a 70% upside potential from current levels, making Upwork a compelling long-term investment. Long form write-up here.”
