Investing

GameStop mentions surged on WallStreetBets on Monday after “Roaring Kitty,” the user who helped catalyze the GameStop stock craze in 2021, resurfaced online, data shows.
The user, whose legal name is Keith Gill, posted several times on X on Sunday and Monday, marking his first posts on Reddit or X since 2021.

Tiffany Hagler-Geard | Bloomberg | Getty Images

GameStop has once again become a hot topic on Reddit’s famed WallStreetBets page Monday after the man who helped make it a meme stock reappeared online.
Mentions of the video game retailer on the Reddit forum topped 1,200 for the last seven days as of Monday afternoon, according to market research platform Quiver Quantitative. With Monday’s boost, the stock became the most-referenced stock in that seven-day period, surpassing the SPDR S&P 500 ETF Trust (SPY), a popular fund tracking the benchmark S&P 500 index, and artificial intelligence darling Nvidia.

Stock chart icon

GME stock performance year to date

GameStop was the most talked about equity on WallStreetBets on Monday, with more than 1,000 mentions in the last 24 hours. Fellow meme stock AMC Entertainment had the next most references in that period, at more than 500.
Monday’s jump in discussion comes as “Roaring Kitty,” the user who helped catalyze the GameStop stock craze in 2021, posted online for the first time in nearly three years. Roaring Kitty, whose legal name is Keith Gill, posted a picture on X of a video game player leaning forward in his chair, suggesting he’s taking the game seriously.
It marked his first post on Reddit or X since 2021. The post has already garnered nearly 100,000 likes since it went up around 8 p.m. ET on Sunday night.
He followed that up with additional posts to X on Monday, with compilations of clips from popular TV shows and movies.
Multiple Reddit users shared screenshots of their GameStop positions on the WallStreetBets page following the return of Roaring Kitty. However, it appeared that many posts on the topic were being filtered out. One post showed a screenshot of GameStop’s intraday chart with the caption, “Oh we are so back.”
GameStop shares soared in Monday’s session and were halted several times due to volatility. With Monday’s rally, the so-called meme stock was up 73.7% in 2024.

Read more CNBC GameStop news More

The 4% withdrawal rule calls for retirees to withdraw that portion from their investment portfolio in the first year of retirement, and subsequently adjust their annual withdrawals for inflation.
But in the decades since the strategy was created, retirement planning has changed.

Wand_prapan | Istock | Getty Images

Guaranteed retirement income is a challenge

Many baby boomers face a challenge of how to maintain their lifestyle once they retire.
Social Security benefits typically replace about 40% of a worker’s pre-retirement income.
Annuities may help provide another source of guaranteed income. However, many people do not seek those products when they retire, due to their complexity and difficulty selecting among the various products.
TIAA has launched a new metric to show why the 4% rule combined with an annuity can provide a higher amount of income than just using the 4% rule alone. (TIAA’s analysis is based on the use of one of its own fixed annuities that provides a guaranteed rate of return.)
For example, if a retiree has $1 million in total savings, the 4% rule would provide them with $40,000 in their first year of retirement.
However, if the same retiree instead converts $333,000 of their $1 million balance to an annuity, that may boost that income to $52,667, according to TIAA. That is based on the combined income of the annuity and a 4% withdrawal on the remaining $666,667 portfolio.
The first-year withdrawal of the annuity strategy — $52,667 versus $40,000 — is 32% higher and $1,056 more per month than just using the 4% rule.
“Retirees never know how much they’re allowed to spend,” said Benjamin Goodman, vice president at TIAA Institute.
“And with an annuity, you know exactly what you can spend, the check, because you’re going to get another one next month,” he said.

One reason more investors do not buy annuities may have to do with their financial advisors.
“It’s rare that we recommend them, but they are applicable in some circumstances,” said Colin Gerrety, a certified financial planner and client advisor at Glassman Wealth Services in Tysons Corner, Virginia.
To be sure, annuities are not a fit for all investors, particularly those who have poor health habits or conditions that may prevent them from living long lives, Goodman said.
But because of the income certainty annuities can provide, they may catch on, Blanchett predicts.
“I think that we’re going to see more and more advisors realize that you cannot create the same kind of outcomes and certainty by managing a portfolio as you can having a retiree allocate their savings to a product that provides lifetime income,” Blanchett said.
Retirees may also get guaranteed income from Treasury Inflation Protection Securities, or TIPS, according to Morningstar. Specifically, a TIPS ladder of bonds with varying maturity dates can provide steady income and inflation protection.

When withdrawal rates may be higher

The 4% rule has its blind spots when applied to today’s retirees, according to recent research from Blanchett.
In addition to ignoring other income streams like Social Security, the 4% model also falls short in that it does not provide a lot of spending flexibility.
Retirees who are depending on their savings to fund essential expenses would want to have a conservative approach.
However, those who have can withstand more market fluctuations may have more flexibility with withdrawal rates.
For those retirees, the 4% rule likely will provide an outdated recommendation.
“It’s going to be too low for most people who are retiring at a reasonable age,” Blanchett said.

While the 4% rule may be useful to gauge how much savings an investor needs when they first enter retirement, it’s not meant to be an ongoing distribution framework, he said.  
The 4% rule is difficult to apply to every single person across the board, particularly as they are subject to different tax rates and have different risk profiles and cash flow needs, Gerrety said.
“Very rarely have I ever seen a client who just withdraws 4% of their portfolio every year, and calls it a day,” Gerrety said. “Things tend to be a lot lumpier and a lot messier than that.”

Don’t miss these exclusives from CNBC PRO More

Those armed with a newly minted diploma are entering a job market that looks a little less promising than it did a year ago.
Employers now project hiring 5.8% fewer new college graduates than they did from the Class of 2023, according to a recent report. 
Experts share their best advice for landing a job in this market.

Those armed with a newly minted diploma are entering a job market that looks a little less promising than it did one year ago.
Employers plan to hire about 5.8% fewer new college graduates from this year’s class than they hired from the Class of 2023, according to a report from the National Association of Colleges and Employers.

Some companies, in industries such as chemical manufacturing, finance, insurance and real estate, have pulled back after scaling up last year, according to NACE. The decline follows a historic hiring boom in the aftermath of the pandemic, the report found, suggesting that this year’s dip reflects a return to “normal” hiring plans. 
However, there are still pockets of growth, mainly in miscellaneous manufacturing, utilities and professional services, NACE also found.
More from Personal Finance:New grads may have a harder time landing their dream jobHere’s why entry-level jobs feel impossible to getNow hiring: ‘New-collar’ workers, no degree necessary
In the current job market, Vicki Salemi, career expert at Monster, advises new grads to “stay positive and optimistic.”
While entering the real world without an offer on the table can be daunting, “they can upskill or pick up a side hustle in the meantime, continue to search and be persistent,” she said.

Given continuing education courses, online classes, certification programs and boot camps, there are more opportunities for young people just entering the workforce to ramp up their expertise.
With many companies continuing to offer the flexibility of hybrid work, there is also the added advantage of being able to cast a wider net, which can work in the favor of someone just starting out.
“In terms of the quality and quantity, they can pursue jobs beyond the constraints of a particular zip code,” Salemi said.

Top tips for job seekers

Recent or soon-to-be grads can also stay ahead of their competition by networking with parents, professors, family friends, classmates, neighbors, community groups and an extensive alumni network, both in person and on platforms like LinkedIn, according to Ivan Misner, the founder of business networking organization BNI.com.
“Sometimes, even weak ties can lead to valuable job referrals,” he said.

But first, clean up your online presence, even on platforms you consider more for fun than networking, Misner cautioned.
“Take down those pictures of you partying at a frat house,” he said. “Potential employers review online profiles, so make sure yours reflects positively on you — and you don’t want to make your network look bad if they recommend you.”
Once you have a foot in the door, offer to do a “working interview,” he advised, to best showcase your skills and abilities.
“Say, ‘if there is a project, bring me in, let me show you what I can do'” — that strategy works because very few people offer to do this, Misner said. “That makes you stand out and they are going to remember you.”
Subscribe to CNBC on YouTube. More

The Leading Indicator of Remodeling Activity, a measure that provides an outlook of the national home improvement and repair spending to owner-occupied homes conducted by the Joint Center for Housing Studies at Harvard University, has been in a consecutive decline since 2022.
“We’re coming off such high levels of spending,” said Abbe H. Will, senior research associate and associate director of Remodeling Futures at the JCHS.

Skynesher | E+ | Getty Images

Fewer homeowners have been taking on remodeling projects, reports show. But don’t mistake it for a slow market.
The Leading Indicator of Remodeling Activity, an outlook measuring home improvement and repair spending on owner-occupied homes, peaked at 17.3% in the third quarter of 2022. The LIRA has been declining since, and slid 1.2% in the first quarter of 2024 compared to the prior quarter.

The NAHB/Westlake Royal Remodeling Market Index by the National Association of Home Builders reflects a similar decline. The RMI, which measures remodelers’ sentiment about the market, peaked at 87 points in the third quarter of 2021, and like the LIRA, has been consistently declining since. In the first quarter of 2024, the measure fell to 66 points, down one point from the previous quarter.
However, the RMI is still in territory where more remodelers see the conditions as “good” rather than “poor,” said Robert Dietz, chief economist of NAHB.
In a release for the group’s first quarter report, NAHB Remodelers Chair Mike Pressgrove noted that “demand for remodeling remains solid, especially among customers who don’t need to finance theirprojects at current interest rates.”

Covid lockdowns, inflation influence remodeling activity

The height of the Covid-19 pandemic brought with it a burst of home renovation activity.
Homeowners were eager to invest in the spaces they were spending so much time in: updating key spaces like kitchens and bathrooms, building out home offices and adding pools.

Some also had savings built up thanks to stimulus checks, and from activities they couldn’t do during early lockdowns — and rerouted that money toward home improvements and remodels, said Abbe H. Will, senior research associate and associate director of Remodeling Futures at the Joint Center for Housing Studies at Harvard University. In 2021, owners used cash from savings to pay for nearly four out of five projects, according to a JCHS report.
“We’re coming off such high levels of spending,” Will said.
More from Personal Finance:Scientists predict an ‘extremely active’ storm seasonWhy buyers of newly built homes can face a property tax surpriseHow mortgage rates impacted the spring housing market
As Covid-era savings have dried up, so has that boost in activity.
Homeowners are doing fewer and smaller remodels. Yet they are spending more per project, in part due to broader inflation and higher costs for materials and construction labor.

Homeowners spent an average $9,542 on home improvements in 2023, a 12% increase from a year prior, according to the State of Home Spending by Angi. At the same time, the amount of projects decreased to an average of 2.8 projects in 2023 from 3.2 in 2022. The survey polled 6,400 consumers between Oct. 22 and Oct. 23.
The increase in home improvement spending, along the decrease in projects, suggests inflation corroded household budgets, according to the home services website.

‘We haven’t built a lot of new housing’

While home improvement activity is expected to further moderate from pandemic highs, remodelers continue to be busy with work.
Contributing to demand: Owners are living in their homes for longer and the existing housing stock in the U.S. is getting older. Both factors are going to require homeowners to invest in the upkeep of their properties, experts say.
As of 2024, the typical homeowner’s tenure in their home is 11.9 years, according to Redfin, a real estate brokerage site. That’s nearly double the average 6.5 years in 2005.
It’s largely driven by baby boomers aging in place; nearly 40% of boomers have lived in their homes for almost 20 years, while 16% have stayed in their home for at least a decade, Redfin found.

“Aging-in-place remodeling” has turned into a big subsector in the remodeling market as baby boomers move into their retirement years, said Dietz. Instead of relocating, some retirees plan to stay in their neighborhoods or close to family.
“But that means they’re investing in their homes, whether it’s energy efficiency items [or] safety items like lighting and railings,” Dietz said.
However, the real driver for remodels is the aging housing market. In 2021, the median age of all owned homes was 41 years old, according to the 2021 American Housing Survey by the U.S. Census Bureau. Homes built in the 1980s or earlier make up about 60% of existing stock, according to a U.S. Census data analysis by the NAHB.
“It really speaks to the fact that we haven’t built a lot of new housing over the last decade. That aging housing stock is going to require investment,” Dietz said. More

Pavlo Gonchar | Lightrocket | Getty Images

As investors grapple with macro uncertainty and a cloudy path on the Federal Reserve’s rate cuts, they will need to adopt a long-term mindset to pick the best names for their portfolios.
To make the right decisions, investors can track the recommendations of Wall Street experts, who carefully assess the financial performance of a company and its growth strategies before assigning their ratings.

Bearing that in mind, here are three stocks favored by the Street’s top pros, according to TipRanks, a platform that ranks analysts based on their past performance.
Domino’s Pizza
This week’s first pick is restaurant chain Domino’s Pizza (DPZ). The company recently reported a beat on earnings per share for the first quarter, driven by higher U.S. franchise royalties and fees, as well as improved gross margin within the supply chain.
Following the Q1 print, Deutsche Bank analyst Lauren Silberman reiterated a buy rating on DPZ stock and increased the price target to $580 from $555, citing increased visibility in the same-store sales growth outlook.
Silberman noted that U.S. same-store sales growth of 5.6% reflected broad-based momentum, with improved traffic experienced in carryout and delivery. She added that the traffic growth was driven by Domino’s revamped loyalty program, strong value proposition, operations and innovation.
The analyst also noted that DPZ is benefiting from increased contributions from Uber Eats, thanks to growing marketing efforts and awareness. Overall, the Q1 results reinforced Silberman’s positive view on DPZ, backed by the company’s initiatives to support an increase in same-store sales, accelerating unit growth with improving franchisee profitability and better margins.

“We believe a premium valuation is warranted, and given the improving fundamental story, we think DPZ offers a favorable risk/reward,” she said.   
Silberman ranks No. 446 among more than 8,800 analysts tracked by TipRanks. Her ratings have been profitable 69% of the time, with each delivering an average return of 13.9%. (See Domino’s Technical Analysis on TipRanks)
Shake Shack
We move to burger chain Shake Shack (SHAK), which reported mixed first-quarter results earlier this month. Nonetheless, investors were pleased with the company’s commentary about improving business trends.
BTIG hosted an investor meeting with the company’s management following the Q1 results. The firm’s analyst Peter Saleh reiterated a buy rating on SHAK stock and increased the price target to $125 from $120 based on the key takeaways from the management meeting.
“We believe the combination of technology (kiosks), enhanced operating model (less labor), and greater marketing are adding up to a very powerful, and profitable combination,” said Saleh.
The analyst thinks that the company’s strategic initiatives will enhance same-store sales growth and drive meaningful restaurant margin expansion in the near and long term. 
Saleh highlighted that management is witnessing a high-teens check growth in kiosk orders compared to traditional in-store orders, as consumers like the customization options available at the kiosks. The analyst sees more sales benefit from the kiosks going forward, in addition to the labor savings and efficiency.
Saleh ranks No. 353 among more than 8,800 analysts tracked by TipRanks. His ratings have been successful 61% of the time, with each delivering an average return of 12.1%. (See Shake Shack’s Ownership Structure on TipRanks)
Apple
Finally, we look at tech giant Apple (AAPL), which recently reported better-than-expected fiscal second-quarter results despite a decline in its revenue. The company cited tough comparisons with the prior-year quarter as the reason for the lower revenue.
Investors reacted positively to the results and the company’s announcement of an expanded buyback program. Apple’s board authorized an additional $100 billion worth of share repurchases.
Calling Apple’s fiscal Q2 results “solid,” Baird analyst William Power reaffirmed a buy rating on the stock with a price target of $200. The analyst noted that the company exceeded his estimates for revenue, earnings per share and gross margin.
Power added that Apple’s Services revenue grew 14.2% year over year, marking an acceleration from the 11.3% growth experienced in the fiscal first quarter. He also observed that Apple’s performance in China was better than feared. Greater China revenue declined 8.1%, reflecting an improvement from the 12.9% drop seen in the previous quarter.
The analyst thinks that the company’s AI update at its June developer conference could be a catalyst for the stock. Power explained that his price target for AAPL stock indicates a premium valuation compared to the peer group, “reflecting strong execution, growing services contribution, continued eco-system benefits and strong free cash flow.”
Power ranks No. 245 among more than 8,800 analysts tracked by TipRanks. His ratings have been profitable 56% of the time, with each delivering an average return of 16.1%. (See Apple Stock Buybacks on TipRanks) More

Historical data suggests a key factor in bringing down prices is a slowdown in consumer spending.
Despite nearly half of Americans reporting they’re in a worse financial situation than five years ago, they’re still spending.
Retail sales were up 2.1% year over year in the first quarter of 2024 and consumer spending jumped in February and March.

Jenn Lueke, 27, is a recipe developer based in Boston who creates content online showing people how to eat well on a budget.
“I think it’s no secret that prices are going up in pretty much every area right now,” Lueke told CNBC.

About two thirds, 65%, of U.S. adults surveyed by CNBC/SurveyMonkey this spring said inflation is the main driver of their financial stress. The same share said they are living paycheck to paycheck. Nearly half feel like they’re in a worse financial situation than five years ago.
In January last year, Lueke started a series on social media where she took one grocery list between $50 and $75 and turned it into five different recipes for their families. She was inspired to show people they can still eat well while cutting down on grocery costs.

Jennifer Lueke, 27, creates budget-friendly recipe for her audience of millions on social media.
Zac Staffiere for CNBC

“It’s really hard. I’m not here to, like, share toxic positivity about how to shop on a budget,” Lueke said. “I’m just trying to empower people to feel like they can get a little bit of control, at least in this one area of their food costs.”

Disinflation, deflation and the ‘money illusion’

“I think Americans are a little perplexed when they see news reports of inflation coming down, and yet they don’t notice any of their prices coming down,” said Lindsay Owens, executive director of the nonprofit think tank Groundwork Collaborative.
There’s an important difference between inflation increasing more slowly — a phenomenon called disinflation — and inflation reversing itself, which would lead to prices coming down. Economists call the latter deflation, which is typically associated with a shrinking economy and potential recessions.

Historical data shows that prices rise a lot easier than they fall. When they do fall, it is typically a result of people spending less, which isn’t currently the case. Retail sales were up 2.1% year over year in the first quarter of this year and consumer spending jumped in February and March.

“This cycle is a concept called money illusion,” said Sabrina Romanoff, a clinical psychologist.
“People with money illusion … don’t take into account the level of inflation in an economy,” she said. “So they wrongly believe that a dollar today is worth the same amount that it was the year prior.”
Experts have raised concern about possible “pockets of trouble” as total credit card balances in the U.S. spiked to a record high of $1.08 trillion in the third quarter of 2023. Nearly half, 49%, of Americans with credit cards say they are carrying a balance from month to month, according to a November 2023 survey by Bankrate.
Wage-increase data may also seem inconsistent with consumer experience. Wages have been rising since January 2022, but the pace of the increase has been slowing down and, on average, it is just keeping up with rising prices. An analysis from Bankrate estimates the gap between inflation and wages won’t fully close until the fourth quarter of 2024.
“For many Americans, wage growth is very overdue,” Owens said. “They have gone years, if not decades in some cases, with stagnant wages or small raises.”

Don’t miss these exclusives from CNBC PRO

Watch the video above to learn more about why prices likely won’t come back down. More

Connecticut has several programs in place to improve college access and affordability, in part by establishing pathways to college and lowering the debt burden.
Here’s a closer look at three of those initiatives — and how they’ve fared so far.  

Hartford, Connecticut
Sean Pavone | Istock | Getty Images

When it comes to improving access to higher education, each state is largely left to its own devices. Some are trying a broader array of tactics than others.
Connecticut, for example, recently rolled out several programs to establish pathways to college and lower the debt burden.

Connecticut has also maintained one of the largest wealth gaps in the country for years. The state is hoping its college aid endeavors could help change that.
Getting a degree offers the best shot at social mobility, according to Anthony Carnevale, director of Georgetown’s Center on Education and the Workforce, which could help narrow the income divide.
Still, these plans have mostly flown under the radar. “We have these incentive programs, but nobody knows about them,” Connecticut Gov. Ned Lamont told CNBC.
Here’s a closer look at three of those initiatives — and how they’ve fared so far.  

Free college program

“We’re trying to do everything we can to make education less expensive to start with,” Lamont said.

Like a growing number of states, Connecticut recently introduced a free tuition program for students attending community college either full- or part-time. In Connecticut, students receive “last-dollar” scholarships, meaning the program pays for whatever tuition and fees are left after federal aid and other grants are applied.
Since the program started, in the 2020-21 academic year, nearly 34,000 students have participated.

Free college is one of the best ways to combat the college affordability crisis, some experts say, because it appeals more broadly to those struggling in the face of rising college costs, rather than the student loan burden after the fact. A federal effort has yet to get off the ground, although President Joe Biden continues to push for free community college nationwide and included it in his $7.3 trillion budget for fiscal 2025.
However, critics say that lower-income students, through a combination of existing grants and scholarships, already pay little in tuition to two-year schools, if anything at all.
Further, free college programs do not generally cover books or other expenses, such as room and board, that lower-income students also struggle with.

Automatic admission program

To make a four-year degree more accessible, Connecticut introduced an automatic admission program to some Connecticut colleges for high school seniors in the top 30% of their class.
The program, signed into law in 2021, aims to make it easier for high school students, especially those from underserved communities, to go to college. In the most recent application cycle, 2,706 students were offered direct admission through the program.
More from Personal Finance:FAFSA fiasco may cause drop in college enrollment, experts sayHarvard is back on top as the ultimate ‘dream’ schoolThis could be the best year to lobby for more college financial aid
Connecticut State Colleges and Universities Chancellor Terrence Cheng said the free-tuition program and the automatic admissions program “are just two examples of steps CSCU and the state have taken to remove barriers to higher education, particularly for first-generation college and minoritized students.”
And yet, for lower-income students, the cost can still be a deterrent, said Sandy Baum, senior fellow at Urban Institute’s Center on Education Data and Policy.
“Both admitting students and telling them how easy it is to pay for it is most helpful, but for students on the margin, they face so many expenses in addition to tuition they will still need to overcome,” Baum said.

Student loan payment tax credit

Next up, the state is rolling out a student loan repayment program to lessen graduates’ debt burden.
In 2019 Lamont signed Public Act 19-86, which created a new tax credit for Connecticut employers who help pay off their employees’ student loans. The tax credit was expanded in 2022 and will be implemented in the months ahead.
“It helps the student, it pays down their debt, makes it very predictable [and] gives businesses an incentive to hire, so it’s a great economic development driver,” Lamont said.
Still, some graduates already pay little or nothing through the federal government’s income-driven repayment plans, Baum said, so borrowers may be better served with a salary increase. “If employers paid more, that would be a lot more fair.”

Ultimately, these programs are all helpful to some degree, but successfully narrowing the wealth gap — in Connecticut and elsewhere — should include assistance for students while they are in college, Baum said.
Improving student outcomes by providing academic and social support in addition to financial aid is the best way to level the playing field, she said.
Many young adults start college, fewer finish. “Rather than focusing on getting people in the door … getting people through is going to have a much bigger impact,” Baum said.
Subscribe to CNBC on YouTube. More

Pavlo Gonchar | SOPA Images | Lightrocket | Getty Images

Company: Sensata Technologies (ST)

Business: Sensata Technologies is an industrial technology company that develops, manufactures and sells sensors, electrical protection components and other products. The company has two units: Performance Sensing and Sensing Solutions. The Performance Sensing segment serves the automotive and heavy vehicle and off-road industries through its development and manufacture of sensors, high-voltage solutions and other offerings. The Sensing Solutions segment serves the industrial and aerospace industries through development and manufacture of a portfolio of application specific sensor and electrical protection products used in a range of industrial markets.
Stock Market Value: $6.38B ($42.34 per share)

Stock chart icon

Sensata Technologies’ performance in 2024

Activist: Elliott Investment Management

Ownership: Elliott is the company’s largest investor, which puts the firm’s economic ownership at or above $600 million (10%), but given Elliott’s history we would not be surprised if it were closer to $1 billion.
Average Cost: n/a
Activist Commentary: Elliott is a very successful and astute activist investor. The firm’s team includes analysts from leading tech private equity firms, engineers, operating partners – former technology CEOs and COOs. When evaluating an investment, the firm also hires specialty and general management consultants, expert cost analysts and industry specialists. Elliott often watches companies for many years before investing and has an extensive stable of impressive board candidates. The firm has historically focused on strategic activism in the technology sector and has been very successful with that strategy. However, over the past several years, Elliott’s activism group has grown and evolved, and it has been doing more longer-term activism and creating value from a board level at a much larger breadth of companies.

What’s happening

On April 29, the company announced that Jeff Cote will retire as CEO and president and will step down from the board, and Martha Sullivan will be appointed interim president and CEO. At the same time, Sensata also noted that Elliott settled for a board seat for Phillip Eyler (president and CEO of Gentherm), effective on July 1. The company also agreed to establish a CEO search committee, to which Eyler will be appointed. He will also join the nominating and governance committee.

Behind the scenes

Sensata has a strong core business making sensors, mainly in the auto-supply space. The products they make include car seats, airbags, tires and CO2 sensors. Sensata is the clear leader among its peers with 80% market share – three times the size of its closest competitors. Manufacturing over 1 billion sensors per year, the company has a tremendous scale advantage and manufacturing overseas. It has low costs and high margins. Moreover, these sensors are not sold off the rack. Rather they are custom made for each application, and Sensata has proven to add value to this process. Yet, over the past one-, three-, and five- year periods from Elliott’s initial action date on April 29, the company has lost 7.28%, 30.23% and 19.33%, respectively. That compares to the Russell 2000’s one-, three-, and five- year returns of 14.99%, -8.10%, and 34.11%, respectively. Sensata has also significantly underperformed peers.

Sensata’s stock price underperformance is tied to various capital allocation missteps that took place under the tenure of president and CEO, Jeff Cote, who served from March 1, 2020 until April 30, 2024, when he resigned from all company positions. Specifically, the company entered the non-core telematics industry with the acquisition of Xirgo Technologies for $400 million in April 2021. Later that year, Sensata acquired SmartWitness Holdings, an innovator of video telematics technology for commercial fleets. The telematics business took focus, capital and resources away from the core business, leading to declining operating margins and compressed trading multiples. The stock is now trading in line with worst-in-class peers.
There are multiple paths to value creation here. The first is to fix the flawed capital allocation practices. This will require a refreshed management team that will resist the urge to chase new trends and significantly overpay for non-core businesses that will end up getting written down in a matter of months. The company has already taken a big stride in this direction, announcing Cote’s retirement and appointing Martha Sullivan as interim president and CEO. Sullivan served as Sensata’s CEO prior to Cote from 2013 to 2020 and had a record of creating value through capital allocation as opposed to destroying it.
Secondly, Sensata has a host of good assets in its portfolio, some of which could be attractive for a strategic transaction. There are both opportunities to divest non-core businesses – like Dynapower and the aerospace business, which could collectively be worth $2 billion – and the potential to sell the entire company. Whenever a company is between CEOs, it is an ideal time for it to be acquired. Even more so when an activist shows up, which always seems to put companies in pseudo-play. Potential acquirers have been snooping around Sensata, and they must be looking even harder now after the recent developments.
Third, regardless of what the company does strategically, there is a secular tailwind that could provide significant value to the core sensor business. As Sensata sensors are used in both combustion and electric vehicles, the current trend to hybrid gives the company a sort of 2-for-1 demand for its products. Sensata has already started seeing the increased demand from this, and it should continue as hybrids become more in demand.
The initial uphill battle for most activist campaigns is getting a foot in the door and getting the company to listen. That part is done here. On April 29, Elliott settled for a board seat for Phillip Eyler and for the establishment of the new CEO search committee. It is also no coincidence that there was a CEO replacement in connection with Elliott’s agreement. In fact, the very first point of the cooperation agreement was Sensata agreeing to accept Cote’s resignation. Elliott has a storied history of taking board seats, often for its own principals. It is telling that the firm chose to settle for a non-Elliott board member, and we would expect that Eyler was appointed, given his qualifications and industry experience. He should be a very valuable board member in supporting management with operational issues. However, if the company or its divisions are potential acquisition targets, it would be nice to have an Elliott executive on the board to help evaluate competing offers.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. More