Six Stocks Activists May Rock in 2006

Three Battles That Could Begin

I believe activists will begin to make some noise regarding Denny's (DENN).

Like McDonald's, Denny's looks like a classic real estate play. With more than 230 properties nationwide, though it's concentrated primarily in California and Texas, there may be substantial value that could be uncovered. Denny's is also operating on an outdated business model that is hiding its true value.

I'm also keeping an eye on Optimal Group (OPMR) and MapInfo(MAPS), because funds known for their activism have taken passive positions of over 5% in them. At any point, these companies could find themselves fair game for a battle.

Third Point, run by Dan Loeb, has taken a 7.6% stake in Optimal Group, which processes credit card payments for Web sites. It has a $460 million market capitalization, $177 million in net cash (cash minus debt) and $55 million in cash flow from operations in the past 12 months, not to mention 200% earnings growth. It's hard to tell from the filings, but it looks like Third Point may have accumulated the bulk of its shares around $19. Currently, the stock is just under $22.

I own shares in MapInfo, which makes location intelligence software for uses ranging from homeland security and crime analysis to marketing and customer service. Activist fund Cannell Capital owns 9% of the company, and Kopp Advisors is in for 7%. The company has a good balance sheet, with $50 million in net cash, strong cash flow ($15 million coming from operations in the past 12 months) and a market capitalization of $280 million. Throw in 100% year-over-year earnings growth and I'm happy owning it at these levels. From the SEC filings, it looks like Cannell bought in at around $13 a share; the stock is currently at $14 and change.

I think 2006 will be a banner year for activists. Many people believe activists are scrooges out to make a quick buck, and I'd agree that many are just that, but they also facilitate the flow of capital, which is absolutely necessary in a capitalist system.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Optimal Group and MapInfo to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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