Arconic shareholders could be big winners

To spy on executives, you don't need permission,

Just filings to the Securities and Exchange Commission.

As a wise investor, you might pay attention

To the buys and sells I'm about to mention.

Elliott Management continues to accumulate shares in Arconic Inc. (ARNC) while it fights to oust Arconic's CEO.

Following a buying spree in February, Elliott is the biggest shareholder in Arconic, owning about 13 percent of the company. Based in New York, Arconic is the raw-aluminum operation split off from Alcoa Inc. last November. It is one of this this year's best-performing stocks, up 44.7 percent through March 10.

Elliott Management, one of the largest hedge fund organizations, has said it would put Larry Lawsen, formerly the CEO of Spirit AeroSystems Holdings Inc., in charge of Arconic. I made good money investing in Spirit AeroSystems in 2013-16, and I think Lawson would do a good job at Arconic.

Spirit says if Lawson takes that job, he would be violating a non-compete clause. I doubt that Spirit will win that dispute. Even if it does, I still think Lawson will take the helm at Arconic if the dissidents win.

Arconic's current CEO, Klaus Christian Kleinfeld, wants to stay on. He owns about $24.6 million in Arconic stock, $17.7 million in Alcoa and 2.4 million in Morgan Stanley shares. If he loses this proxy fight, he may be sad but he will not be broke.

If I were an Arconic shareholder, I would be voting the “blue card” to bring the dissidents to power.

International fragrances

I'm not sure whether Elliott will experience any “buyer's remorse” if it captures Arconic. But I suspect that may happen with Winder Investment PTE's recent purchases in International Flavors and Fragrances Inc. (IFF). Winder is a private company is Singapore.

I consider International Flavors a good company. But its revenue growth has slowed to less than 2 percent annually in recent years. Meanwhile, the stock reflects the company's excellent reputation. It sells for 23 times earnings and six times book value (corporate net worth per share).

Winder has recently added 280,000 shares to its position in the company. It now owns 10.4 percent of the company, or 8.2 million shares. Up to now, Winder has said it intends to be a passive investor.

Chesapeake Energy

At Chesapeake Energy Corp. (CHK), director and former chairman Archie Dunham recently purchased 500,000 shares, bringing his holding to 4.6 million shares worth almost $24 million.

For more than a decade, under former CEO Aubrey McClendon, Chesapeake was a grab-all-you-can acquirer of natural gas assets. In the process, it ran the company's total liabilities up to a peak of $26 billion in 2012. Chesapeake shares peaked at more than $62 in 2008, and have fallen to a little above $5 now.

Today, Chesapeake's net worth is negative. It may pull out of the hole and is trying hard to do so under new management that is selling off assets and shrinking the company. Such stories often end badly, though, and I'm not optimistic here.

Wal-Mart

Members of the Walton family have sold more than $1 billion of stock in Wal-Mart Inc. (WMT) in February and March. Yet it scarcely puts a dent in the family's holdings. The Walton clan owns more than 50 percent of the company, which is valued at $215 billion.

Revenue at the retail giant grew at less than 4 percent the past five years, and just over 4 percent last year.

Track record

This is the 41st column I've written about insider trades. I've tabulated the 12-month results for all columns written from the beginning of 1999 through March 2016.

•Stocks that I recommended and that showed insider buying beat the Standard & Poor's 500 Index by 6.50 percentage points, on average.

•Stocks that showed insider buying but that I said I would avoid have trailed the S&P 500 by more than 27 percentage points.

•Stocks that showed buying but where I made no clear recommendation have beaten the index by 15.9 points.

•Stocks where I commented on insider selling have trailed the index by 1.69 points.

One year ago, I said I found Bank of New York Mellon Corp. (BK) “attractive,” but recommended avoiding Hertz Global Holdings Inc. (HTX) and Boston Beer Co. (SAM). Bank of New York rose 30.8 percent. The other two fell 48.50 percent and 12.33 percent respectively.

Bear in mind that my column recommendations are theoretical and don't reflect actual trades, trading costs or taxes. Their results shouldn't be confused with the performance of portfolios I manage for clients. And past performance doesn't predict future results.

John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass., and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.