Following activist investors should be an important part of your strategy because these investors do not simply invest in stocks for the long run. Instead, they often pick companies with a lot of hidden potential and attempt to unleash it by pushing for changes such as spin-offs, mergers, or management changes. Of course, more often than not, activist campaigns fail either because the existing board and management hold a decisive voting power, or shareholders find the changes too extreme and unpredictable and do not support the intentions of activist investors. Nevertheless, taking a closer look at stocks activist investors are targeting in combination with other analysis can often yield market-beating results.
Peter Kolchinsky of RA Capital Management
Activist investors can be distinguished by filing Schedule 13D filings with the US Securities and Exchange Commission. Even though both Schedule 13D and Schedule 13G filings are required to be submitted by investors who amass more than 5% of a stock, the rules state that a Schedule 13D is required by an investor who intends to take an activist stance towards the company and these investors are not allowed to submit the shorter-form Schedule 13G. Therefore, we have scanned through the 13D filings submitted in the last several weeks and identified 10 companies in which investors increased their positions. In addition, some of the companies that made our list already have an established relationship with the activist, so we have also looked at the background behind the investment.
Without any further ado, let’s dive into top 10 stocks activist investors are targeting.
10. Purple Innovation Inc (NYSE:PRPL)
We are going to kick off our list with Purple Innovation Inc (NYSE:PRPL), which was included in a recently filed amended 13D by Coliseum Capital, a fund founded by Christopher Shackelton and Adam Gray. Coliseum reported ownership of 46.81 million shares of the company, equal to a 44.64% of the outstanding stock. The position was unchanged from the previous disclosure. However, Coliseum reported that it had entered into a binding memorandum of understanding with Purple Innovation, under the terms of which the parties agreed, among other things, to sign a cooperation agreement and settle a previous lawsuit. In addition, the company will expand its board to eight directors and make some changes to the composition by accepting resignation of two directors and appoint three other directors. The new board structure is subject to approval by Purple Innovation’s stockholders at this year’s annual meeting.
Purple Innovation Inc (NYSE:PRPL) is engaged in design and manufacturing of comfort solutions, including mattresses, pillows, frames, and sheets and it was featured in our list of 16 best mattress brands in the us. For the last quarter, the company reported a revenue of $145.1 million, down by 22% on the year and an adjusted net loss of $0.10 per share, up from a loss of $0.35 per share reported in the same quarter a year earlier. For the current year, Purple Innovation Inc (NYSE:PRPL) expects revenue between $590 million and $615 million, which represents an increase from the 2022 figure of $575.5 million.
Overall, there were 13 funds tracked by Insider Monkey bullish on Purple Innovation (NYSE:PRPL) at the end of 2022, down by one over the quarter.
9. Eliem Therapeutics Inc (NASDAQ:ELYM)
Eliem Therapeutics Inc (NASDAQ:ELYM) is a small-cap ($87 million) clinical-stage biotech company that focuses on developing therapies for neuronal excitability disorders. In a recent 13D filing, Peter Kolchinsky’s RA Capital Management disclosed adding around 12,000 shares to its holding, which now amasses around 13.16 million shares, representing 49.5% of the company. The large position is due to the fact that Eliem Therapeutics was actually incubated by RA Capital Management and has one of its managing directors among its founders. The company went public in 2021, but its stock has sunk by 77.5% since the IPO following several disappointing trial results.
In February, Eliem Therapeutics Inc (NASDAQ:ELYM) announced plans to re-prioritize its pipeline and to shelf a GABA (Gamma-Aminobutyric Acid) receptor positive allosteric modulator for major depressive disorder, which has previously completed Phase 1 trials. Instead, the company will focus on its Kv7.2/3 program aimed to develop therapies for epilepsy and pain and has potential in depression disorders. The program is currently in preclinical stage with phase 1 trial expected in the first half of 2024. In addition, Eliem Therapeutics plans to lay off 55% of its workforce in the first half of 2023 and its CEO and President has stepped down, being replaced by Andrew Levin, the current chairman of the board and a managing director at RA Capital Partners.
Only five investors tracked by Insider Monkey reported holding shares of Eliem Therapeutics as of the end of 2022, holding in aggregate $52 million worth of company’s stock.
8. Ritchie Bros Auctioneers Inc (NYSE:RBA)
Then there’s Ritchie Bros Auctioneers Inc (NYSE:RBA), in which Jeffrey Smith’s Starboard Value has recently increased its position by some 262,900 shares to 13.80 million shares, which represent around 7.60% of the outstanding stock. Starboard first invested in the Canada-based company earlier this year. In January, Ritchie Bros Auctioneers Inc (NYSE:RBA), which provides end-to-end solutions for buying and selling used heavy-duty equipment, trucks and other assets in the construction, transportation, agriculture, mining, and other sectors, announced that it had entered into a securities purchase agreement with Starboard under the terms of which, Starboard acquired $485 million in preferred equity and $15 million in common stock. At the same time, Jeffrey Smith will be appointed to Ritchie Bros Auctioneers Inc (NYSE:RBA)’s board of directors.
In March, Ritchie Bros Auctioneers Inc (NYSE:RBA) completed the acquisition of US auto retailer IAA Inc. Interestingly enough, IAA Inc had previously been spun-off from KAR Auction Services Inc (NYSE:KAR) and Starboard was a shareholder of KAR and supported the separation of the two companies. Therefore, Mr. Smith is very familiar with the business of Ritchie Bros Auctioneers’ latest acquisition and can help harness the synergies that arose from the merger.
During the fourth quarter of 2022, Ritchie Bros Auctioneers Inc (NYSE:RBA) saw an increase in popularity among hedge funds in our database. There were 37 investors with $768.81 million worth of stock at the end of December, up from 24 funds and $291.08 million a quarter earlier.
7. NN Inc (NASDAQ:NNBR)
In NN Inc (NASDAQ:NNBR), a diversified industrial company, John Barrett and Eric Soderlund’s Corre Partners disclosed holding 5.98 million shares (13.6% of the outstanding), an increase of 8% from the previous position. Corre Partners and NN Inc (NASDAQ:NNBR) have a relationship that goes back years. In 2021, NN announced that following collaboration with Corre Partners it would expand its board of directors and appoint Rajeev Gautam Ph.D , former President and CEO of Performance Materials and Tech at Honeywell International Inc (NASDAQ:HON). In 2019, Corre Partners together with another large shareholder, Legion Partners Asset Managentm acquired $100 million in perpetual preferred stock and received warrants to purchase 1.5 million shares at $12 apiece with a 7 year term to purchase (the stock is currently slightly above $1).
For the last quarter, NN Inc (NASDAQ:NNBR) missed both top- and bottom-line estimates with EPS of $0.12 and revenue of $118.01 million. During the earnings call, CEO Warren Veltman said that the sales were even lower than the company’s own projections due to lower production volumes on the back of COVID-19 interruptions in China. For the current year, NN Inc (NASDAQ:NNBR) expects net sales between $525 and $555 million and adjusted EBITDA in the range of $50 million to $60 million.
Including Corre Partners, there are 9 funds in our database bullish on NN Inc (NASDAQ:NNBR) as of the end of 2022.
6. AstroNova Inc (NASDAQ:ALOT)
At the end of March, Alexis Michas and John Bartholdson’s Juniper Investment Company increased its stake in AstroNova Inc (NASDAQ:ALOT) by 9% to 473,500 shares, which brings its stake to 6.4% of the company. Last year, Alexis Michas was appointed to AstroNova’s Board of directors. For the fiscal fourth quarter, AstroNova Inc (NASDAQ:ALOT) reported a revenue growth of 34% on the year to $39.9 million and EPS of $0.18, versus a loss of $0.10 per share a year earlier.
AstroNova Inc (NASDAQ:ALOT) is a data visualization technology company that designs, produces and services products for data storage, analysis and presentation. Aside from Juniper, other funds tracked by Insider Monkey with long positions in AstroNova Inc (NASDAQ:ALOT) include Chuck Royce’s Royce & Associates and Jim Simmons’ Renaissance Technologies, which own 518,500 and 105,200 shares, respectively, according to their latest 13F filing.
