What do you get when you cross a flurry of like-minded tweets with the offspring of one of the world’s most successful activist investors?
(No, this isn’t some terrible Wall Street joke.)
You get the perfect storm for a stock to nearly double in short order.
And now that I’ve officially got your attention, let’s get to the opportunity…
Time and time again, everyday investors telegraph their buying and selling activity by tweeting their opinions on publicly traded stocks beforehand.
For those “listening in” to the chatter, the tweets provide valuable sentiment information that can be used to determine entry and exit points in particular stocks.
I’m not the only one who thinks so, either.
As The Wall Street Journal reports, there are “a host of financial firms that see untapped trading potential in [Twitter].” They’re cashing in on it, too, by weeding out the senseless chatter to find the meaningful market information. They then sell the data to traders, who use it as actionable intelligence.
The reason I’m bringing this up is simple: On October 31, one of these “social listening firms,” Trade Ideas LLC, noticed an unusual uptick in mentions of Fidelity National Financial, Inc. (FNF). The stock received 12 times the average mentions in a single day.
The title insurance company should ring a bell with you. Why? Because on February 28, I singled out Fidelity National as one of five overlooked and undervalued ways to capitalize on the ongoing recovery in the residential real estate market.
The stock has performed as predicted – up 8.62% since that time. Compare that to the wildly popular iShares Dow Jones U.S. Home Construction ETF (ITB), which is down 2.93% over the same period.
While the outperformance isn’t much to brag about, new information suggests that Fidelity National could be on the cusp of leaving ITB in the dust and rallying 84.6%.
An Icahn-Trained Activist Investor Will Lead the Charge
After doing some digging, it turns out that the uptick in social media buzz involving Fidelity National coincides with a 13-D filing by Corvex Capital, run by Keith Meister.
For those unaware, a 13-D filing is required when an investor acquires a 5% or larger stake in a particular company.
The “D” designation means that the investor plans to play an active role in bringing about change at the company – like demanding a board seat or pressuring management to put the company up for sale. Hence the “activist investor” label often attached to such filings.
The most widely known activist investor is, of course, Carl Icahn.
Well, guess what? Meister served as Icahn’s right-hand man, until he left to found Corvex in 2011.
You think he learned a thing or two from his former boss? I believe that would be a safe assumption. But we don’t have to guess. All we have to do is look at his track record…
- In October 2012, Corvex initiated a large position in ADT Corporation (ADT), a spinoff from Tyco International Ltd. (TYC). He prepared a lengthy presentation outlining how management could unlock shareholder value. Within six months, the stock was up 40%.
- In February 2013, Meister took a big stake in CommonWealth REIT (CWH). Once again, he showed management how to unlock value. And sure enough, the stock is up 45% since his arrival.
If that’s not impressive enough, consider that billionaire George Soros provided the $250 million in seed capital Meister needed to launch Corvex. I can’t think of a more compelling vote of confidence, can you?
So, what’s Meister up to at Fidelity National?
He believes the company needs to jettison its non-core businesses (O’Charley’s Restaurant, Remy International and Ceridian Payroll Services) and focus on its real estate businesses instead.
In terms of value, he believes the non-core assets could fetch $5 per share.
Meanwhile, according to a report by Barron’s, he believes the core businesses could be worth upwards of $50. That is, once the pending acquisition of Lender Processing Services (LPS) is complete and housing activity returns to more normalized levels.
Based on the stock’s current price, we’re talking about an upside of more than 80%.
Bottom line: Icahn’s pupil has already demonstrated his ability to sniff out undervalued opportunities, particularly in the real estate sector. The latest social media buzz indicates that more and more investors are catching on, too.
Forget just blindly following their leads, though. The fundamentals warrant it.
The stock trades at an attractive valuation of 13 times earnings. The core business is ramping up, with sales increasing 6% over the last year, to $1.5 billion.
Plus, management just hiked the quarterly dividend by 12.5%, to $0.18 per share. That means we’ll get paid a modest 2.7% yield while we wait for Meister to shake things up.
So if you didn’t take my advice the first time around to enter a position in Fidelity National, I don’t recommend you wait much longer.
Ahead of the tape,