While piggybacking, which means picking a stock merely following a hedge fund manager’s move, is considered risky, CNBC‘s Mad Money host, Jim Cramer is recommending the strategy for The Bank of New York Mellon Corporation (NYSE:BK). The stock is currently on Trian Fund Management CEO Nelson Peltz‘s radar.
Cramer’s exception for The Bank of New York Mellon Corporation (NYSE:BK) stems from his proprietary research, where he thoroughly observed and arrived at the conclusion that piggybacking Peltz translates into the out-performance of the stock. Cramer revealed that since Trian Fund has recently built 2.5% stake in The Bank of New York Mellon Corporation (NYSE:BK), towards the end of June, therefore, it will be a wise move to put an absolute ‘Buy’ for the stock. Cramer said that post taking a stake in the bank, Peltz wishes to initiate discussions with the management in order to put the bank on long-term growth track and to generate higher value for its shareholders. Cramer said, it “caught my attention”, and The Bank of New York Mellon Corporation (NYSE:BK) jumped by over 3% on the news and still has more opportunity to climb higher.
Cramer said, “Nelson Peltz has tremendous experience in helping turn around financial companies.” He recalled that how Peltz’s involvement in State Street Corporation (NYSE:STT) helped it to boost its value by more than double.
Cramer cited: “In October of 2011, Peltz’s Trian took a stake in State Street, a custodial bank just like BNY Melon. At that time, Peltz urged the bank to spin off its money management unit and the State Street’s management refused to sell their asset management business, but they did get aggressive about cutting costs and returning capital to shareholders.”
Peltz had made an exit in 2013 after which, State Street Corporation (NYSE:STT) had doubled in value.
Another ailing stock that found Peltz as its savior was Legg Mason Inc (NYSE:LM). Cramer said that Peltz is still occupying a position among the board of directors of the company and since 2012, Legg Mason Inc (NYSE:LM) has returned more than 97% in value, beating 39% returns of S&P 500, over the same length of time. As evident from the Peltz’s strategy in two of the financial companies, Cramer strongly believes that The Bank of New York Mellon Corporation (NYSE:BK) is all set to repeat history.