One of my best and most profitable investment strategies is to follow the movements of activist investors.
I don’t mean “activist” in the sense of being for or against a particular social issue – Investopedia defines the term as “an individual or group that buys a significant stake in a public company in order to influence how the company is run, such as by obtaining seats on its board of directors.”
Every day, I check the latest 13D filings at the SEC. Activist investors have to file one of these forms with the SEC announcing how many shares they own and their intentions.
I’ve been reading these since the 1980s, when we had to try to get them off the bulky Quotron machines and print them out on a dot-matrix printer. The only way to get a hard copy of the actual filing was to write or call the U.S. Securities and Exchange Commission and wait for them to mail it to you.
It’s a lot easier to track and read the filings today.
So, why do this? Well, there’s only one reason to do anything when it comes to investing your money. Following activists has made me a lot of profit over the years.
Activist investors can often push thought changes that make the company more profitable. For example, they can push companies to buy back a lot of stock or boost their dividend. Often activists have been known to encourage the sale of unprofitable or low margin divisions to focus on the more profitable part of the business.
I have seen activists replace executives and underperforming board members. Frequently activists will push for the sale of a company.
All of these things can lead to much higher stock prices.
So when I see some of the best-in-class activist investment firms going big on a company that’s already a mainstay in American business, I know it’s time to get in, and I think you should too…
This Firm Is Everywhere and You Don’t Know It
You may not realize it, but you’ve been interacting with a small company named TransAct Technologies Inc. (NASDAQ: TACT) regularly for most of your life.
Since 1996, it’s been one of the world’s leading manufacturers of the printer terminals that print receipts at restaurants and stores, and up until recently, the receipts at banks and even lottery tickets.
Once the initial sale is made, its revenue stream stays steady by selling the customer base printing paper, terminal cleaners, and other supplies until the machine is replaced.
TransAct is also active in the casino and gaming industry, and the growth of the slot machine and sports betting business has been producing steady cash. In addition, the gaming business has high margins. Since casinos have historically replaced between 10% and 15% of all their slot machines every year, it creates continual new sales opportunities for TransAct.
Its growth strategy is based on a new platform called BOHA! and the even newer BOHA! Restaurant Operations Platform. These systems automate the back office for convenience stores and restaurants. The system can monitor things like food temperatures, inventory management, and task scheduling for TransAct’s customers. In addition, it helps them operate more efficiently and stay in compliance with ever-changing regulations from the FDA and other government agencies.
And this new platform has had some really exciting news recently.
Apple Inc. (NASDAQ: AAPL) selected TransAct BOHA! Restaurant Operations Platform software and hardware as it begins targeting the restaurant market for iPad adoption. Apple is directing its enterprise sales team to push iPad and BOHA! ROP in the restaurant industry.
This should be a high driver of new revenue growth for TransAct Technologies. In fact, the company thinks that increasing demand for automation and food safety technologies drives a multibillion-dollar market opportunity.
The initial sale of the BOHA! Hardware to a convenience store or restaurant is about $800. Recurring revenue for supplies and software updates will be about $1,200 per terminal.
This can be a fantastic business that just keeps giving year after year.
But for me, the real excitement has to do with the influx of activist investor money.
How Activists Could Drive TACT Through the Roof
Late last week, I noticed that B. Riley Financial Inc. (NASDAQ: RILY) had opened a new 5.2% activist position in shares of TACT.
B. Riley is a financial company in Los Angeles that also does research and has a brokerage and asset management business, but it’s the merchant bank that interests me the most. This is the division that takes activist positions in smaller companies and tries to work with management to improve the company.
Stealing ideas from B. Riley has made me a lot of money over the years.
As I investigated further, I found that two other activists, 325 Capital Master Fund LP and Harbert Discovery Fund, also have taken positions and recently reached an agreement with the board of TransAct. The funds will be given two board seats immediately. The board also agreed to split the role of Board Chair and CEO right away. Haydee Ortiz Olinger, a highly respected businesswoman, was appointed chair of TransAct Technologies.
That’s three activists in the stock, and I expect them to push for a sale here. There are dozens of larger companies that sell to the same industries and would be able to benefit from buying TransAct.
But even if that doesn’t happen, its continued growth and presence in the casino industry, along with a new technology platform to revamp their business in the restaurant and convenience store sectors, and new leadership that will be pushing the company toward future gains, all tell me that it’s very much in play.
The stock was trading around $7.35 as markets opened Monday, riding a slight bump on news of this reorganization, but I think this stock has a lot further to go. Now’s the time to get in.
— Tim Melvin
Source: Money Morning