Top 10 Stocks Activist Investors Are Targeting

Published on April 21, 2023 at 10:39 am by Alexandr Oleinic in Activism, Hedge Funds, News

In this article we’re going to take a look at Top 10 Stocks Activist Investors Are Targeting in the recent weeks.

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.

5. Dice Therapeutics Inc (NASDAQ:DICE)

Next in line in our list of top 10 stocks activist investors are targeting is another healthcare company in which RA Capital increased its position. Peter Kolchinsky’s fund added 811,700 shares to its position in Dice Therapeutics Inc (NASDAQ:DICE) bringing it to a total of 7.66 million shares, which represent 16.05% of the outstanding stock.

Dice Therapeutics Inc (NASDAQ:DICE) is a clinical-stage biopharmaceutical company that focuses on oral treatments for chronic autoimmune and inflammatory diseases. Its lead candidate is a product for the treatment of psoriasis and in October the company reported positive Phase 1 trial results, with a reduction in Psoriasis Area and Severity Index of more than 47% in the high dose group compared to 13% in the placebo group. On the back of the positive trial data, the company’s stock more than doubled but has lost some of the gains since then.

Most analysts have a positive outlook on Dice Therapeutics Inc (NASDAQ:DICE) stock. For example, Needham & Company initiated coverage on the stock at the end of March, assigning a Buy rating and $56 price target. In its latest quarterly results, the company reported a net loss of $0.51 per share and more than $574 million in cash, cash equivalents and marketable securities, which should be enough to fund the company’s operations for the near future.

4. Gracell Biotechnologies Inc (NASDAQ:GRCL)

Healthcare-focused investor Samuel Isaly’s Orbimed Advisors has recently boosted its stake in Gracell Biotechnologies Inc (NASDAQ:GRCL) by 27% to 7.58 million shares. The holding gives Orbimed ownership of 11.2% of the company’s outstanding stock. The increase in the bullish sentiment comes after in February Gracell Biotechnologies Inc (NASDAQ:GRCL), a clinical-stage company engaged in developing cell therapies for the treatment of cancer, announced that the US Food & Drug Administration approved its Investigational New Drug Application of its CAR-T therapeutic candidate for the treatment of relapsed multiple myeloma. The company added that the approval allows it to proceed with Phase 1b/2 clinical trial, which is expected to commence in the second quarter of 2023.

In its last quarterly results, Gracell Biotechnologies Inc (NASDAQ:GRCL) posted a net loss of $0.06 per share, beating the estimates. The company also said it had more than $210 million in cash, cash equivalents and short-term investments at the end of 2022.

There were just eight funds tracked by Insider Monkey long Gracell Biotechnologies Inc (NASDAQ:GRCL) at the end of the last year, unchanged over the quarter.

3. Greenbrook TMS Inc (NASDAQ:GBNH)

Greenbrook TMS Inc (NASDAQ:GBNH) is a small ($31 million market cap) healthcare company that provides Transcranial Magnetic Stimulation (TMS) therapy for the treatment of mental disorders including Major Depressive Disorder. In a recent 13D filing, Madryn Asset Management reported raising its stake in the company to 21.2% from the previous holding of 8.21%. The new position comprises 9.28 million shares and positions Madryn among the company’s largest shareholders. According to the filing, Madryn acquired the shares following a private placement. In addition, in 2022, Madryn and Greenbrook TMS Inc (NASDAQ:GBNH) entered into a credit agreement worth $75 million that was extended by several additional tranches earlier this year.

Greenbrook TMS Inc (NASDAQ:GBNH) lost more than 66% since the beginning of the year even though it had a 150% bounce between March 23 and March 30. At the end of March, the company announced a delay in filing its annual report for the last year as it is seeking additional information and analysis related to some potential non-cash impairment charges related to some non-financial assets.

2. US Xpress Enterprises Inc (NYSE:USX)

Our top two picks in the list of top 5 stocks activist investors are targeting are new additions to funds’ portfolios. In US Xpress Enterprises Inc (NYSE:USX), Mario Gabelli’s GAMCO Investors reported ownership of 2.13 million shares, representing 5.89% of the company. Founded in 1986, US Xpress Enterprises Inc (NYSE:USX) provides truckload carrier services and freight brokerage services. GAMCO invested in US Xpress Enterprises as the company announced reaching an agreement to be acquired by Knight-Swift Transportation Holdings Inc (NYSE:KNX) for a total enterprise value of around $808 million. The stock nearly quadrupled on the back of the announcement made on March 21. Shareholders of US Xpress Enterprises Inc (NYSE:USX) are expected to receive $6.15 per share as part of the deal. The acquisition is subject to regulatory approval and approval of US Xpress Enterprises Inc (NYSE:USX).

1. Seadrill Ltd (NYSE:SDRL)

Last but not least, in offshore rig contractor Seadrill Ltd (NYSE:SDRL), Paul Singer’s Elliott Management reported a new stake containing 7.41 million shares equal to 14.83% of the outstanding stock. The position was not acquired through purchasing of stock, but Elliott obtained the shares as Seadrill Ltd (NYSE:SDRL) completed the merger with Aquadrill. Aquadrill was formerly known as Seadrill Partners and was an asset-holding unit of Seadrill Ltd (NYSE:SDRL). The company emerged from bankruptcy protection and changed its name to Aquadrill in 2021.

For the last year, Seadrill Ltd (NYSE:SDRL) reported revenue of $1.1 billion, in line with its previous forecasts, while its EBITDA of $265 million was at the top end of its guidance.

There were 10 funds in our database that held in aggregate $315.40 million worth of Seadrill Ltd (NYSE:SDRL) stock at the end of 2022.

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