There are eight large cap stocks with hidden value that, if unlocked, could see their share prices surge by between 20% and 50%.
The key to unlocking the value lies in shareholder activism, according to Credit Suisse.
The broker noted that activist funds have been the best returning hedge fund style since 2005 with the strategy delivering an annualised return of 7.4%.
Activism refers to shareholders publically agitating for a structural change in the company that may include asset divestments, capital return, significant cost cutting, or a change in business focus or corporate governance.
Such significant changes carry risks but history has shown that the rewards often outweigh risks.
Credit Suisse has identified eight ASX stocks that it thinks are ripe for activism as they are cheap, have the balance sheet strength to support capital returns and can divest assets to increase their productivity.
The stock with the greatest potential upside is petrol retailer Caltex Australia Limited (ASX: CTX) with the broker estimating a 50% upside to its current share price from its break-up value. Caltex can also bolster returns by re-leveraging its balance sheet and distributing its bank of franking credits.
Embattled department store operator Myer Holdings Ltd (ASX: MYR) is second as it can unlock 30% of its value. If Myer merges with David Jones, that could trigger $80 million in cost savings alone. That is a significant figure given that Myer generates an earnings before interest, tax, depreciation and amortisation (EBITDA) of around $200 million.
Wealth Manager AMP Limited (ASX: AMP) is a long standing break-up favourite. Remember National Australia Bank Ltd.'s (ASX: NAB) tilt for the company over a decade ago? Over that period, many other "rumours" have come and gone and Credit Suisse thinks there is a 29% upside to be had if AMP can refocus its businesses and undertake credible cost cuts.
News Corp (ASX: NWS) also makes it on the list as it has a 25% upside if the Murdoch family can be persuaded to support a simplified corporate structure and sell underperforming assets. That might be a bit of wishful thinking though as I can't see something that dramatic happening with my former employer, especially while Rupert Murdoch is around. But it's still food for thought!
Other companies that would benefit from activism include building companies CSR Limited (ASX: CSR) and Fletcher Building Limited (Australia) (ASX: FBU), property company Lendlease Group (ASX: LLC) and mining giant BHP Billiton Limited (ASX: BHP).
