Nelson Peltz’s Favorite Stocks

TRIAN PARTNERSNelson Peltz runs Trian Fund Management and serves as the chairman of fast-food burger joint, Wendy’s. Last year was a busy one for Peltz. He sold his stake in CBS and Pepsico and attempted to buy the discount retailer, Family Dollar, to no avail. In the end, he still returned 7.02% net of fees through an equity long/short strategy. Peltz had his share of the M&A/buyout boom in the 1980s, merging Triangle Industries and National Can in 1985 and selling the entity three short years later for over four billion dollars.

Here are Nelson Peltz’s top 10 holdings at the end of March:

Company Ticker Value ($000s) Activity
SPDR S & P 500 ETF PUTS SPY 725,876 New
FAMILY DOLLAR STORES INC FDO 630,661 0%
KRAFT FOODS INC KFT 471,374 -10%
STATE STREET CORP STT 447,876 0%
WENDYS CO WEN 415,831 8%
LEGG MASON INC LM 410,634 0%
INGERSOLL RAND PLC IR 247,538 New
TIFFANY & CO NEW TIF 191,166 -38%
DOMINOS PIZZA INC DPZ 150,645 0%
UNITED STATES OIL FUND L P USO 49,234 New

Nelson Peltz initiated holdings in the S&P 500 ETF (SPY) puts, Ingersoll Rand (NYSE:IR), and the Oil Fund ETF (USO), while reducing holdings in Kraft (NYSE:KFT) and Tiffany & Co. (TIF), two companies that we remain positive on. With KFT taking a new direction for its Oscar Mayer portfolio to address consumer concerns about health and new marketing strategies for its gum brands, we view KFT’s adaptability and innovation as strong points for the company. KFT competes with General Mills (NYSE:GIS), Kellogg (NYSE:K), Hain Celestial (NYSE:HAIN), and J&J Snack Foods (JJSF).

GIS announced not too long ago that it would acquire Brazilian food company Yoki for ~$875million USD, pushing GIS’ Latam sales to $1 billion. Yoki is a leading Brazilian food company and operates in snacks, convenient meals, grains, and seasonings. Between that acquisition and its strength in US yogurt, GIS is a formidable competitor to KFT. Kellogg, on the other hand, has been more of a laggard with depressed cereal sales and the Pringles still undergoing integration. Pringles should eventually serve as a catalyst, but overall, the company has not been a strong performer. HAIN is well-positioned to take on the $41 billion natural/organic market, but the space has become increasingly competitive. KFT’s move to make many of Oscar Mayer products preservative free is an indication of that and larger companies with more FCF like KFT and GIS will likely swoop in with big wallets to capture some of the rapid growth. In this sector, we are sitting out of smaller brands like HAIN and JJSF. JJSF’s JJSF expansions did not go unnoticed with another building to bakery operations in St. Louis, MO, and a 2x increase for pretzel manufacturing, but valuation for JJSF at 18.4x forward earnings is unattractive. KFT currently trades at a 13.7x forward multiple compared to GIS at 13.8x, Kellogg at 13.4x, and HAIN at 26.0x. We believe KFT is a superior investment to GIS, Kellogg, HAIN, and JJSF. Warren Buffett and Bill Ackman have large positions in Kraft (see Warren Buffett’s top picks).

Ingersoll Rand, also a Warren Buffett holding, is a new stock in Peltz’s portfolio. He is the most bullish hedge fund manager about the stock. Ingersoll Rand is expected to earn $3 in 2012, giving it a forward PE ratio of 13.4. This is a reasonable multiple but we don’t think this is the best time to invest in a cyclical stock. Billionaire Ken Griffin doesn’t agree with us. Citadel tripled its position in IR to nearly $100 million during the first quarter.

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