We recently compiled a list of the 15 Stocks Targeted By Activist Hedge Funds. In this article, we are going to take a look at where Autodesk, Inc. (NASDAQ:ADSK) stands against the other stocks targeted by activist hedge funds.
Shareholder activism continued at a record pace in 2024 as activist hedge funds pushed for strategic changes in various companies to unlock hidden value. In the first nine months of the year, 184 activist hedge fund campaigns were up and running, 26% above the four-year average. The surge came as new activists joined the fray and spearheaded 22% of the campaigns.
Why Was Shareholder Activism on The Rise?
A number of factors can be emphasized. One is the global economy cooling down. Although the US economy appeared to be on track to a soft landing, as many experts had predicted, economic growth remained timid, and other nations like Germany were on the verge of going into recession.
The rise of so-called ESG investing is another factor contributing to increased shareholder activism. Environmental, social, and governance, or ESG, is a relatively recent trend in which investors purchase stock in a company for its intrinsic value and because it performs well on ESG metrics. Some activist investors have positioned themselves as ESG-focused in the midst of this trend.
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Nevertheless, only 30% of the top ten activist investors accounted for the total campaigns in 2024, down from 46% in the same period in 2023. On the other hand, most of the campaigns were less successful in breaking into company boardrooms as management fought back.
Management pushed back on several campaigns even as activist hedge funds were forced to settle on management changes. Additionally, as investors’ newfound freedom to choose between management and dissident slates makes it easier to get representation on boards, the universal proxy card continues to lead to more settlements between activists and businesses.
Even though winning board seats isn’t the main goal of every campaign, the quantity of victories indicates how well businesses are defending themselves. Dissidents won 74 seats in the first half, compared to 93 in the same period in 2023. Activists only secured 11% of the seats they were vying for in US proxy elections, compared to 65% in 2023.
Similarly, a push for company sales by activist hedge funds hit a snag as buyouts throughout the year were scarce owing to the high interest rate environment. High interest rates made it difficult for companies to access cheap capital that they could use to complete acquisitions.
According to Jim Rossman, head of the Barclays advisory group, there hasn’t been much merger and acquisition activity in the past two years. The activists’ preferred method of obtaining value from a company’s stock is weakened as a result. The most frequent demand of activists is still M&A, but they are now more focused on altering a company’s board and management.
“Activism has become increasingly sophisticated as a tactic,” says Rossman, who sees firms hiring bankers, lawyers and private equity veterans. “There’s a greater depth of understanding on how to unlock value in companies.”
As corporate board nominations open in the new year, the pace of activism is expected to increase in the upcoming months. According to Rossman, activist demands for M&A may resurface in 2025 as private equity firms look to use their growing cash and their current holdings.
Activist hedge funds typically have minority, long interests in underperforming businesses that have significant potential for value development. Since value investors make up the majority of activist investors, they must first find undervalued companies.
Our Methodology
To make our list of stocks targeted by activist hedge funds, we looked for companies that made the headlines in the context of renowned activist investors taking a position. We then ranked these companies based on their latest market capitalization.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A software engineer using AutoCAD Civil 3D to create a 3D design in a modern office setting.
Autodesk, Inc. (NASDAQ:ADSK)
Company Market Cap as of December 31: $63.55 Billion
Number of Hedge Fund Holders: 70
Autodesk, Inc. (NASDAQ:ADSK) is a technology company that provides worldwide 3D design, engineering, and entertainment technology solutions. The company offers AutoCAD Civil 3D, surveying, design, analysis, and documentation solutions. While the stock was up by 26% in 2024, it was the subject of an activist campaign by Starboard Value.
The activist hedge fund sent a letter to the company’s board demanding answers on what was behind an internal financial probe that sparked federal investigations. The hedge fund also wants answers on misrepresentation of key financial metrics. Starboard Value believes that Autodesk, Inc. (NASDAQ:ADSK) hasn’t gone far enough in addressing shareholder concerns, which caused its stock to drop 20% when it was announced, and that more executives than the company’s CFO were involved in the attempt to deceive investors.
To increase profitability and raise the share price, the activist hedge fund is currently looking to alter Autodesk’s management, operations, and financial accounting approach. It has prepared a thorough report outlining how this could be accomplished, along with a press release and letters to the board and other shareholders.
Additionally, Starboard Value thinks that Autodesk, Inc. (NASDAQ:ADSK) spends too much on marketing and sales in comparison to its competitors. Consequently, it should focus on real operating margin improvements to boost investor confidence.
Parnassus Mid Cap Fund stated the following regarding Autodesk, Inc. (NASDAQ:ADSK) in its Q3 2024 investor letter:
“In Software, we added Autodesk, Inc. (NASDAQ:ADSK) and Cloudflare while exiting Bill.com. We believe Autodesk’s dominant position in architecture, engineering and construction software allows it to increase margins and offer attractive revenue growth. Autodesk is a market-leading vertical software company with the ability to meaningfully improve its margins, while its revenue growth should accelerate as it completes its sales channel re-alignment.”
Overall ADSK ranks 6th on our list of the stocks targeted by activist hedge funds. While we acknowledge the potential of ADSK as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ADSK but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.