Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: The former California arm of Occidental Petroleum Corporation (NYSE:OXY) is surging today in one of its biggest moves since being spun off late last year. As of mid-afternoon trading the stock of California Resources Corp (NYSE:CRC) was up just over 17%. It's rally is being fueled not only by the nearly 9% surge in the price of crude, but the fact that an activist hedge fund has disclosed a 9.98% stake in the company.
So What: Because oil is a big part of California Resources' business -- oil is 72% of the company's reserves -- its stock is going to rally along with oil prices. Especially considering the fact that it was spun off as oil prices were cratering causing its stock to plummet promptly after Occidental Petroleum handed over an 80% stake in the company directly to its shareholders.
Many of California Resources' shareholders promptly sold their newly issued stock, which is why at one point the stock was down about 50% from the spin-off price. However, that sell-off did attract buyers and among those buying was hedge fund Soroban Capital Partners, whose founder has a history of activism in the energy sector. That history, combined with such a large stake in California Resources, is likely leading other investors to join in with hopes that Soroban can coax some value out of the company.
Now What: The addition of a large activist investor is interesting, especially one with a history of activism in the energy sector. It's possible that the hedge fund simply sees a beaten-down stock worth buying. However, it's also possible that it will eventually push for a value-creating move such as an acquisition or asset sale. That potential catalyst makes the stock at least worth watching.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.