Billionaire Nelson Peltz’s Stock Picks

TRIAN PARTNERSNelson Peltz, manager of Trian Partners, is an activist investor who owns shares of a relatively small number of companies that he believes he can readily influence. Peltz was, for instance, appointed to the board of directors at Ingersoll-Rand Plc (NYSE:IR) and has expressed interest in the past to buy $250 million debt of the NHL’s New Jersey Blue Devils. Trian Partners recently released its 13F filing, disclosing a number of its holdings and some new positions.

Ingersoll-Rand PLC is now the fund’s second largest holding, with a position valued at about $568 million. The fund has a 7 percent stake in the company, and the board has reported that it will be considering the large set of recommendations put forth by Peltz. Perhaps the largest move, according to analyst speculation, is the possible split of the company’s air condition wing from its security system business. The company’s shares are up 50 percent year-to-date. The Street expects earnings per share of about $3.20 in 2012, up from $1.18 in 2011 and the highest in the past six years.

As we reported in July, Trian sold about 600,000 shares of Family Dollar Stores, Inc. (NYSE:FDO), which is still the fund’s most valuable holding. Since last June, when Bill Ackman recommended the stock at the Ira Sohn Conference, Family Dollar shares are up about 20 percent, though they are slumping from their mid-June highs. Ackman noted that Family Dollar was a $6.5 billion market cap business initiating a $750 million share buyback at the time and that the company boasts an excellent return on capital of 20 percent. That said, Wal-Mart Stores, Inc. (NYSE:WMT) is going to be heading into Family Dollar’s business segment with smaller boutique stores, which could threaten sales.

Peltz is chairman of the board at The Wendy’s Company (NASDAQ:WEN), and Trian Partners owns 83 million shares of the company, flat since the end of the first quarter. Operating margins for the famous hamburger chain were down to 5.6 percent in 2011 from 6.3 percent in 2010, which is further being eroded by increasing food prices. The company’s recent divestiture of Arby’s will allow it to focus on its own operations and, in particular, on improving same-store sales.

Trian has reduced its still sizable position in Kraft Foods Inc (NASDAQ:KFT) to 10.4 million shares from 12.4 million shares. This mirrors moves made by Warren Buffett’s Berkshire Hathaway to cut some of its holdings in this food and snacks company. Bill Ackman’s Pershing Square sold its entire stake in Kraft Foods Inc to enable the financing of its 1 percent ownership in The Procter & Gamble Company (NYSE:PG). Kraft is set to spin-off its curiously named Mondelez, which will take with it snack foods like Oreo, Cadbury, and Ritz. We recently noted that, as with Ingersoll-Rand, Peltz might be holding Kraft as a special situations play—spin-offs can be very lucrative as the Street values each of the components separately.

The fund also initiated a position in Lazard Ltd (NYSE:LAZ) valued at $145 million. Lazard Ltd is a holding company specializing in financial advising and asset management. This gives Peltz’s fund about a 4 percent stake in the company.

Absent from this quarter’s 13F is a stake in Domino’s Pizza, Inc. (NYSE:DPZ). The company is still repositioning its brand and has had impressive price performance. The fund also cut its holdings in Tiffany & Co. (NYSE:TIF) from 2.7 million shares to 1.38 million shares. Tiffany & Co. is having trouble facing up to global competition, though its long-term profitability is still attractive.

Like Bill Ackman and Dan Loeb, Peltz’s activist strategy looks for turnaround and influence in companies that have good brands or businesses but sub-par performance or execution. For Ingersoll-Rand and Wendy’s, Peltz’s advice and influence is going to have a large impact on investors’ returns.

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