By Paul R. La Monica

This has been a phenomenal year for the stock market, but there have been some notable laggards that could get a boost in 2025 if activist investors push for changes.

Jonathan Boyar, principal of Boyar Value Group, is banking on top institutional firms looking to shake things up at some companies with underperforming stocks. Several of those are on Boyar's new annual Forgotten Forty list, a group of stocks he and his research team feel are undervalued and have potential to rebound.

Boyar's research team said in a report profiling the 2025 Forgotten Forty list that there has been strong activist activity in the U.S. and Asia -- particularly Japan. They think activists will keep focusing on companies where a strategic or operational change could boost returns.

"Valuation and stock picking matter. These types of names should do well, " Boyar told Barron's in an interview.

Boyar's team identified drugmaker Pfizer; Band-Aid and Benadryl owner Kenvue; specialty insurer Markel; restaurant and arcade chain Dave & Buster's; and Japanese videogame leader Nintendo as companies that have had activist interest or could become the focus of activist investors in the future.

Pfizer has been criticized by activist shareholder Starboard Value for spending more on mergers and acquisitions, as opposed to internal research and development. Boyar and his team said they understand the concerns, but added the company's "overall drug pipeline appears to be underappreciated by analysts."

The Boyar team also noted Pfizer has made strides in cutting costs. What is more, the stock is now trading at just 9 times 2025 earnings estimates, a discount to its historical average. And Pfizer pays a dividend that yields 6.5%, which the Boyar analysts think helps set a floor for its valuation.

Starboard has also taken a stake in Kenvue and has argued the company's skin care and beauty segments, which include the Aveeno and Neutrogena brands, are suffering from lackluster growth and poor profit margins.

Boyar's team thinks Kenvue, which was also on the firm's Forgotten Forty list for 2024, is taking the necessary moves to boost performance. It noted the company has been engaged with celebrity influencers and has made an effort to strengthen in-store performance. The team sees green shoots for Neutrogena, but said the brand's turnaround is a work in progress.

Markel and Dave & Buster's are two other stocks that have attracted activist investors.

Jana Partners recently acquired a stake in Markel, with the hopes of pushing Markel to sell or spin off its private investment business. The Boyar analysts said Jana's purchase of Markel stock "may further emphasize value creation opportunities, particularly share repurchases in place of other uses of capital."

Dave & Buster's has had hedge fund Hill Path Capital as a top investor for the past few years. Boyar's team thinks the company is being unfairly hurt by worries about a slowing economy. They argue its so-called "eatertainment model" has weathered prior recessions with its "value proposition of being a relatively inexpensive night out."

The Boyar research team also sees upside for Dave & Buster's from international franchising and a marketing push toward streaming video, audio, and social media to attract younger customers.

Younger customers are also a big part of Nintendo's strategy. The company, most famous for its Super Mario Bros., Donkey Kong, and Legend of Zelda franchises, has boosted revenue over the past few years from higher margin digital subscriptions, licensing, and movies as opposed to just the sale of new gaming consoles and software. But Nintendo could get a boost from the expected launch of its Switch 2 device later this year.

And Boyar's team also argues the increased presence of activist investors in Japan could push Nintendo to make moves, such as increasing its dividend and doing more stock repurchases. The team said Nintendo arguably has more cash on its balance sheet than it needs and the company "could unlock meaningful shareholder value even with a modest amount of buybacks."

The Boyar analysts also don't rule out the possibility of Nintendo getting bought.

"It's not inconceivable that Nintendo could be acquired: its valuable IP would be coveted by a large number of media companies, including Comcast, " Boyar's team wrote.

Comcast is also one of the stocks on this year's Forgotten Forty list, along with Barron's owner News Corp., Disney, and UPS.

Last year's portfolio rose 14.5%, underperforming the 28.6% increase in the S&P 500 since the 2024 list was unveiled. The Boyar analysts attributed the smaller gains to a relative lack of exposure to tech.

Corning was the only tech stock on last year's list, and it surged more than 60%. Interactive Brothers and Allison Transmission also helped boost the portfolio's performance. Each stock more than doubled.

But the Forgotten Forty was dragged down by more than 30% drops in Goodyear Tire & Rubber, CVS Health, and Topgolf Callaway Brands.

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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December 30, 2024 15:32 ET (20:32 GMT)

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