Billionaire Nelson Peltz’s Stock Picks for 2013 Include Family Dollar

Budget consumers. With State Street out of the picture, Trian’s second and third largest holdings by market value are consumer companies aimed at budget spenders: Family Dollar Stores, Inc. (NYSE:FDO) and The Wendy’s Company (NYSE:WEN) (Peltz did report a position in Tiffany, but that was less than a sixth the size of his Wendy’s stake). In its most recent fiscal quarter, Family Dollar’s net income was flat compared to the same period in the previous fiscal year despite rising sales. Investors have cooled on dollar stores recently- perhaps they believe the market is reaching saturation- and the trailing earnings multiple at Family Dollar is 16, which is in line with that of many mature retailers. Wendy’s recently beat earnings expectations, and the stock has responded positively; while the valuation does look high based on historical performance, the good quarter served as a signal that the company could be improving (and annualizing Q4 yields a P/E multiple of only 16).

We think that MeadWestvaco is best avoided at least until it becomes clear what Peltz’s plan is for the company. Similarly, Wendy’s seems too expensive to buy now but a short position would be too risky if last quarter turns out to be the start of a trend of improved financials. Family Dollar and State Street- even though Trian was cutting its stake in the latter- seem to be the best value prospects out of the stocks we’ve covered here, and investors may want to take closer looks at those companies.

Disclosure: I own no shares of any stocks mentioned in this article.