Sometimes a little shareholder dissent is a good thing for a tech stock. Sometimes it is useful for a day trader to be on the lookout for up and coming tech stocks with shareholder dissent and the possibility of a trading opportunity. A stock in the news recently is Valeant (VRX). The company underwent a change of management several years ago when dissident shareholders disagreed with the direction the company’s founder was taking them. In an, apparently, better managed tech stock the price has doubled in the last few months due to a promising new product, a drug for epilepsy.
In day trading, we always look for volatility with lots of good volume for a trading opportunity. Fluctuation of stock prices begets profits. Economic conditions, potential markets for products, the promise of inventions all drive stock prices and provide trading opportunity. However, sometimes cause of the variation in a stock price comes from inside a company. There are many examples of old, stalwart companies that were in the doldrums until someone bought a controlling interest or at least a seat or two on the board and forced a turnaround in management. Disney is a case in point where new board members brought Michael Eisner in and injected life back into the venerable company. When Disney replaced Eisner with George Mitchell in 2004 this shareholder dissent provided another trading opportunity.
The case of a tech stock like VRX is different but similar. Certainly a small tech stock does not, yet, have a world wide market and billions in assets. However, a small tech stock can have the same kind of management in the person of a founder who is afraid of giving up control and is frozen in an ineffective management, marketing, or development style. The stock volatility that comes from shareholder dissent provides another trading opportunity.
None of this is to suggest VRX as an investment or a stock to trade. It is to bring to mind the trading opportunity that the volatility that comes with shareholder dissent brings. It also brings to mind the trading opportunity that eventual success of the tech stock under reinvigorated management may bring.
Shareholder dissent does not always come from “outsiders.” Years ago the venerable producer of Cure 81 hams and Spam, Hormel, had to deal with shareholder dissent from grandchildren of the Hormel family. In this case the grandfather passed a lot of stock on to his family and gave a controlling interest to the Hormel Foundation whose primary responsibility if charitable and civil minded work for the town of Austin, Minnesota, where’s Hormel started and where its corporate offices still are.
Hormel was paying a percent or two per year in dividends and their stock price was not moving. In the 1980’s with lots of corporate takeovers the grandchildren were interested in a buyout that would make their stock much more valuable. Because none of these grandchildren were in the meat business they just wanted their money to do with as they pleased. This was, briefly a trading opportunity. However, the structure set up by the grandfather worked as planned and the company did not sell out and continues to pay low dividends and is an extremely secure, if low paying, long term investment, but not a trading opportunity.
Sometimes shareholder dissent provides us with a trading opportunity and sometimes it doesn’t.
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