Whatever your ethical stance on activist investing is, it really does not matter. It is now common practice for large investors to take a large stake in a company and then tell the management that they know how to run their business better than they do.
This is usually accomplished by the investment firm sending a letter to the board of directors while simultaneously releasing the news to the public.
That is what occurred Tuesday as Elliott Management has taken an activist stake in Western Digital Corp WDC, making it the PreMarket Prep Stock of the Day.
Western Digital Moves Opposite The Market: Last week was a bad one for the S&P 500 index, which includes several technology stocks, as it shed 3.3%.
The same cannot be said for Western Digital, as it gained 7.3%. The reason could have been Elliott Management purchasing its $1-billion stake in a weak tape.
$100 Stock: In Elliott Management's letter, it called on the board to conduct a full strategic review of the value that could be created by separating its two vastly different businesses, hard disk drives and NAND flash memory.
By executing on a separation, Elliott believes Western Digital's stock price could reach over $100 per share by the end of 2023, representing uniquely attractive upside of approximately 100%.
Not a bad return for Elliott after accumulating such a large stake.
PreMarket Prep's Take: When the issue was being covered on the show Tuesday, it was already trading higher by over $5 at the $59 area. Co-host Dennis Dick put it bluntly: “Activists move stocks. It is already trading up 10%. Am I going to chase it? No.”
He added: “They are talking their book that it is worth $100; that is what they do.”
We've Heard This Story Before: The author of this article recalled when Elliott Management made a similar move with AT&T Inc. T back in September 2019. When the issue was trading at a pre-split adjusted price in the mid-$30 handle, Elliott projected the company could be worth $60 if it did the spin-offs suggested.
AT&T moved higher in that session and had follow-through, but as evidenced by its current price, along with shares of Warner Bros. Discovery Inc. WBC, it does not even add up to $40.
WDC Price Action: Investors are buying what Elliott is proposing in Tuesday’s session. After a much higher open, ($60.04 vs. $52.92), Western Digital had a brief retreat to $59.21 and then resumed its move higher.
It has continued to make new highs for the session, with the current one being $62.61 as of 1:50 p.m.
The discussion on the issue from Tuesday’s show can be found here:
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