You’ve got an overconfident CEO who, just two years ago, sat on the set of CNBC to boast: “Even if we stood still, we’d generate a lot of business.” (That CEO is out the door now, by the way.)
You’ve got a company with a declining customer base…
You’ve got a firm that just filed a totally lackluster Q1 earnings report…
And you’ve got shares that have fallen nearly 70% from their 52-week high.
Add it all together, and what do you get? A disaster?
No – far from it. In fact, what you’ve got in this company is pure bottled lightning.
It’s so far under Wall Street’s radar as to be almost subterranean, but it’s got the attention of one of the world’s savviest, richest, (not to mention most demanding) investors.
And it’s got our attention, too, because we could be looking at cheap, fast, double-digit upside here…
This Company Has Fallen Far… Right to Where We Want It
When now-outgoing Conduent Inc. (NYSE: CNDT) CEO Ashok Vemuri made his televised prediction about making money standing still, his firm had just been spun off from Xerox Co. (NYSE: XRX), and there was plenty of reason for optimism.
Then two years of merciless reality kicked in… and the stock took a severe beating, falling from $23.39 to $7.14 in mere months.
That didn’t escape the attention of one of the most legendary corporate raiders of all time – a guy whose coattails we definitely want to ride on.
I mean Carl Icahn, of course.
I’ve been a longtime fan of Carl Icahn. Not only because he has established himself as one of the best activist investors in market history, but also because his confidence, savvy, and even his name alone have fueled a few remarkable upswings in stocks.
Icahn has long taken aim at Xerox, calling its board of directors “delusional” in a letter to shareholders in 2018.
So I was pleased when Icahn pushed up his stake in Conduent with recent purchases of the stock. Icahn had taken three board seats at the company. And the last two months at Conduent have been chaotic.
Shortly after joining the board, Icahn’s appointee, Michael Nevin, resigned immediately. He then penned a brutal letter saying that the company’s chair, Bill Parrett, had been “asleep at the switch.”
The company recently slashed its full-year guidance and reduced its outlook on 2019 revenue. Its CFO said that the state of California failed to renew a $140 million contract set to expire in September and that new bookings have declined year over year by 39%. That sounds like a management failure.
Following that performance, Conduent’s board accused Icahn of staging a coup in an effort to replace Parrett. The firm also said that Icahn would not release Nevin’s letter publicly to the SEC unless Icahn would replace Parrett at the head of the table.
Nevin’s letter – whether it’s a stunt or not – criticized Vemuri, but took the board of directors to task, saying that the rest of the leadership was “the quintessential example of one of the biggest problems in corporate America today – too many directors simply do not give a damn.”
This same playbook has been used by Icahn in the past, when he took on Xerox. Back in 2017, another Icahn appointee abruptly resigned and issued a scathing letter.
This is high boardroom drama – about as exciting as it gets, folks – and it’s creating an intriguing opportunity, given Icahn’s increasing effort to wrestle control of the company.
Icahn Builds His Stake; We’ll Do the Same
Icahn has built a steady stake in CNDT stock over the last year.
Insider buying is a very solid indication of management confidence that the stock will climb in the future. Following a strategy of owning stocks where owners with at least 10% draws the attention of investors and fuels a buying frenzy.
On May 13, Icahn bought $32 million in company stock. Three days later, after the resignation of Barrett, he purchased another $22 million.
Now, he owns more than 13.7% of the company. With Icahn asserting greater control, we’ve seen the stock turn the corner.
Conduent shares have risen from $7.32 to $9.32 in just a few weeks.
The speculation is that Icahn may soon push for an outright sale of the company to the highest bidder or add additional seats to his existing three spots on the board of directors.
The bottom line is, whatever Icahn decides to do, we want to be there when he does it. I’m going to be getting my Quantum Tracker readers a special play on this stock, but this makes a good intermediate-term buy for anyone. Look for the stock to pack on double-digit, market-beating gains while Icahn stirs the pot – and puts cash in our pockets.
— Garrett Baldwin
Source: Money Morning