Traders looking to profit over a multi-month period can often get a good return following activist shareholders. Typically, activists build a position then disclose it. Once they do, they also make note of changes they’d like to see at the targeted company.
Some companies will work to make those changes, and get the activist shareholder to move on. Others may resist, and then have to deal with a boardroom battle. How this plays out can lead to wide returns in how the stock performs.
Recently, Elliott Investment Management has targeted semiconductor chip manufacturer Texas Instruments (TXN). The activist investor sees the potential to increase TXN’s free cash flow and put it to better use.
Shares were barely unchanged on the news. But TXN has been rallying in recent months, and is up 13% over the past year. That’s well under the performance of many other semiconductor companies.
Action to take: Even with its recent run higher, Texas Instruments has more room to run. And the company’s 35% profit margin can likely improve, and along with it investors can obtain higher cash flows.
At current prices, Texas Instruments pays a 2.6% dividend.
For traders, the July $210 calls, last trading for about $3.20, could see high double-digit returns in the coming weeks on a further push higher in TXN shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.