Why Investing Like This Activist Could Make You Look Smart

In many pessimistic scenarios, the advantages of Outerwall’s vast system of retail partnerships are simply overlooked. Wal-Mart Stores, Inc. (NYSE:WMT), for example, has agreed to feature Redbox kiosks in over 3,500 of its stores through at least 2014, while Walgreen Company (NYSE:WAG) and The Kroger Co. (NYSE:KR) are a couple other names that offer similar high-quality kiosk placement. Regardless of if the company’s new ventures take hold or not, it’s this partnership network that appears to be the key driver behind Wall Street’s bullish forecasts.

The combination of Outerwall’s solid growth prospects at a very reasonable valuation warrants any investor’s attention, and Jana’s stake is just icing on the cake. Any buyout would place a premium on the company’s current share price, and divestitures would likely place a higher multiple on Outerwall’s core business.

That’s not all

In addition to Outerwall, Jana Partners also advanced its activist campaign at Safeway Inc. (NYSE:SWY) last month (see the full recap here), and now owns 6.2% of the food and drug retailer. Unlike the scenarios discussed above, it doesn’t appear that Jana is seeking a sale at Safeway. According to the filing with the SEC, the hedge fund is focused on potential cost cutting measures, capital return programs (likely in the form of dividends or a buyback), and a review of executive compensation packages. At a paltry 0.2 times sales, there’s no denying Safeway shares have room to rise if Jana can implement one of more of these initiatives.

Of the two activist stakes, both Outerwall and Safeway are attractively priced with multiple possibilities present that can generate appreciation. We’ll continue to watch this activist’s filings with the SEC, so stay tuned for updates.

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