Stocks in Valuentum’s newsletter portfolios–the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio–are often ones that find the greatest interest among activist investors. After all, they are generally undervalued on a discounted cash-flow basis, generate tremendous amounts of free cash flow, and have solid balance sheets, flush with cash that can be used to pay outsize dividends. This makes them ripe for shareholder activism, which so far, has been a blessing for constituents of the newsletter portfolios as share prices are driven higher.
Traditionally, it has been Carl Icahn (IEP) that has taken a liking to our ideas. The activist investor, and chosen Treasury Secretary of Presidential hopeful Donald Trump, has been involved at one time or another in eBay’s (EBAY) separation with PayPal (PYPL), and investors are all-too-familiar with Mr. Icahn’s recognition of the tremendous mispricing in Apple’s (AAPL) shares. In fact, the legendary investor continues to be a huge fan of the company, as he also acknowledged the broader market risks, something we’ve been concerned about for a while, per Barron’s:
We’re considering buying a lot more. I mean, we own 55 million shares or something. We would be buying a lot more if I weren’t as concerned about the market. I think it’s just one of the great situations of many years…
Today, it was revealed that another activist giant, Nelson Peltz of Trian Fund, has taken a top-10 stake in a holding of both newsletter portfolios, General Electric (GE). We like the activity, and frankly, we’re surprised to see GE still languishing in the mid-$20s in light of its massive backlog of unfulfilled orders, which stood at $272 billion at the end of the calendar second quarter, and outsize dividend yield of ~3.6% that is backed by gobs and gobs of free cash flow and growing cash on the balance sheet as non-core assets are shed. Having already offloaded most of its “risky” financial assets, we would expect GE’s future free cash flows to eventually warrant a lower cost of capital, and that means a higher intrinsic value.
We currently value GE’s shares at $29 each, implying roughly 10% upside, but the higher end of our fair value range, or $33 per share, may be on the way to GE’s ongoing march upward. See Valuentum’s stock landing page on GE here >>