Alpha Buying: Big Oil Becomes Ground Zero for Activist Investing in 2025

Corporate insiders have not been impressively active so far in 2025. Despite a great deal of volatility, insiders have been held back by a rising wave of uncertainty. With the tariffs confusion lingering, it is tough for folks running corporations to get a handle on costs, profit margins, or economic conditions. While prices have retreated to a degree, it’s not like stocks are suddenly super cheap and attractive either. The S&P 500 still trades with a PE ratio based on trailing earnings of 26 and a CAPE Ratio of 32.7. While off the highs of earlier this year, both are still extremely high by historical standards. Given the unattractive cocktail of valuation and uncertainty, insiders have pretty much kept their wallets in the desk drawer for much of the year.

This is another class of investor I track that thrives on uncertainty, and as a group, they have been very active so far this year. I am talking about activist investors, the more gentlemanly title for what were once known as corporate raiders. The Barclays Q1 2025 Review of Shareholder Activism reveals several important trends that can help us unlock opportunity.

Despite economic uncertainty and market volatility, activist campaigns have continued their upward trajectory. Global campaign activity reached 70 initiatives in Q1, representing a 17% increase year-over-year and running 25% above the four-year quarterly average. This suggests that periods of uncertainty often create fertile ground for activists to identify undervalued situations.

The most notable regional development is the resurgence of U.S. activism, which increased 43% year-over-year with 40 campaigns. After two years where American companies represented less than half of global targets, U.S. companies now account for 57% of global activist activity. Meanwhile, Japan continues to emerge as a significant battleground with 16 campaigns (up 45%), while European activity remains subdued with just 10 campaigns.

More importantly, the activists are scoring major wins. Companies like Honeywell HON, Becton Dickinson BDX, and Solventum SOLV all announced significant break-ups or divestitures in Q1 following activist pressure.

The effectiveness of activist campaigns appears to be improving. The Barclays report identifies 51 board seats won in Q1, representing a 34% increase from the same period in 2024.

The King of the Activists this year is once again Elliott Management.

Elliott Management continues to lead the pack with four campaigns in Q1, including high-profile engagements at BP plc BP, where the company announced a refocus on its oil and gas business and a strategic review of its Castrol lubricants unit.

The campaign at BP has run into a snag in the form of lower oil and gas prices. As oil prices have pulled back in response to the tariff confusion, the share price of London-based oil and gas giant has fallen sharply. Elliott responded by upping its stake to over 5% of BP. That’s impressive given that BP has a $75 billion market cap.

Elliott wants management to drive the renewables business and cut spending by several billion dollars and has also outlined steps it feels BP should take that would get free cash flow to rise to $20 billion a year, well above the current $8 billion. Elliott has also suggested that leadership changes may be in order. The activist has met with many of BP’s largest shareholders to drum up support for its ideas.

At this point, even if Elliott does not win its campaign, the shares are attractive. Thanks to falling oil prices, the stock is trading at a depressed valuation and yields over 6%. A firming in energy prices could see the shares trade back up near the high of the year near $40. If Elliott does win the day and BP meets the cash flow targets, there is a good chance the shares will double or more in value.

BP is not Elliott’s only current campaign in the oil fields. In the spring of 2024, Elliott revealed a $1 billion stake in Phillips 66 PSX and wasted no time firing off a blistering indictment of the company’s lackluster operational performance.

There has been a great deal of back and forth, but Elliott has not been appeased and has moved forward with a proxy fight. The activist is seeking four seats on the board of the refiner. They recently sent a letter to Phillips shareholders that said, “Investors’ patience has been punished, and a new lineup on the board is necessary to reverse the company’s long-term underperformance and improve its poor corporate governance practices.”

Phillips fired back, sending its own letter that pointed out, “Since our formation in 2012, we have returned more than $43 billion to shareholders through dividends and share repurchases. We have grown our dividend at a 15% Compound Annual Growth Rate (‘CAGR’). The dividend we pay to our shareholders has grown every single year since we have been a publicly-traded company – even through troughs in commodity cycles and periods of economic disruption. Not many energy companies can say the same.”

This is another potential win-win for investors. The stock is cheap, and management just raised the dividend to yield 4.5%. Improved economic and market conditions could easily lead to a huge bump in the price of the stock. If Elliott wins the proxy battle and its changes are effective, the upside potential is again over 100%.

In the case of both BP and Phillips 66, investors get paid handsomely to wait for the battle to be played out.