The Big Money Is Placing Their Bets on Beaten-Down Winners Now

It’s no surprise that investors who follow company insiders can make above-average returns over time. Company insiders are knowledgeable about their company and its operations. But following big-name investors after they build a stake in a company can make a similar profit.

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  • That’s because those who make a big buy can often earn board seats, and work on strategies to improve the business, sell off a division, or otherwise do something to result in better performance for investors.

    Activist investors have been increasingly active as this bear market has dragged on. One of the more interesting activist moves now has been Starboard Value’s investment in Salesforce (CRM).

    Salesforce provides back-end services for online sales, with a software suite that’s become industry standard. Yet share prices have been cut in half in the past year, even as the company’s recurring-revenue model continues to grow—with a 22 percent jump in revenue.

    Action to take: Shares are a relative value for an industry-leading tech software company, at 25 times forward earnings. Long-term buyers today can likely see great returns going forward, even if things look ugly now.

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  • For traders, the potential for unlocked value in the coming months from an activist investment makes a call option look attractive. The June 2023 $220 calls, last going for about $4.10, can deliver mid-to-high double-digit returns. Traders should look for a spike in shares on some announcement by the company to take profits.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.