A company that is intrinsically undervalued may remain that way for an extremely long period of time. That is why we try to identify a catalyst that could elevate the company’s stock price over a reasonable period of time.
Noteworthy catalysts include:
- The initiation of a dividend or meaningful stock repurchase program that reflects a company’s strong balance sheet, which can include excess cash or significant financial capacity (i.e., low leverage levels).
- A possible corporate split or spin-off that makes economic sense, which would unlock shareholder value.
- Management changes, acquisitions, macro themes (i.e., demographics, housing recovery) and the prospect for improved operating performance due to business investments or changing industry/competitive dynamics.
- A company controlled by an octogenarian with no heir apparent.