13F filings for the fourth quarter of 2012 are in and we have been looking through them as part of our investing strategies and in order to provide information about what many notable investors, including billionaires and hedge fund managers, reported owning as of the end of December. Even though that was some time ago we have found that it is possible for investors to profit from 13F filings; for example, the most popular small cap stocks among hedge funds average an excess return of 18 percentage points per year (learn more about our small cap strategy).
Nelson Peltz is a value and activist investor who heads Trian Partners, and has become a billionaire due to his success in finance. His picks tend to be long term, and so investors can be somewhat confident that Trian’s current top stock picks are close to what they were two months ago. Here are some trends which we noticed in Peltz’s 13F for the fourth quarter of 2012 compared to previous filings:
MeadWest. On February 15th– after the 13F disclosed that Peltz had initiated a position of 1.6 million shares last quarter- packaging company MeadWestvaco Corp. (NYSE:MWV) rose 13%. Its current market capitalization is $6.4 billion. MeadWestvaco’s products are used for packaging food, beverages, and personal products. Sales were down by 11% in the fourth quarter versus a year earlier, and the stock actually looks pricy at a trailing P/E of over 30 (of course, Peltz may use activist tactics to prod the company into unlocking shareholder value, so the current valuation metrics may not be as critical here). Peer International Paper Company (NYSE:IP) carries a trailing P/E of 23, and a forward P/E of 9 as Wall Street analysts expect considerable improvements in earnings over the next couple years.
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.
