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DineEquity Inc (DIN), Asbury Automotive Group, Inc. (ABG): Michael Dell’s Top Stocks

Most people are unaware that billionaire Michael Dell, the founder of tech giant Dell Inc. (NASDAQ:DELL), has a hedge fund that oversees some $550 million of his personal wealth. Michael Dell formed the MSD Capital hedge fund in 1998, and it’s currently managed by Glenn Fuhrman and John Phelan. The fund remains heavily concentrated, with over 80% of its assets vested in its top four stocks (check out MSD’s top stocks).

DineEquity Inc (NYSE:DIN)

Let’s eat

Michael Dell’s hedge fund is 29.5% invested in DineEquity Inc (NYSE:DIN). DineEquity Inc (NYSE:DIN) owns and operates both IHOP and Applebees restaurants. Since acquiring Applebees in 2007, DineEquity has re-franchised almost all of the Applebee’s restaurant chain and used the proceeds to reduce overall debt. As far as the informal sit-down dining space goes, the market expects the industry to see low-single digit same-store sales growth in 2013.

The aforementioned re-franchising efforts have lead to lower revenue, but DineEquity Inc (NYSE:DIN) has managed to grow net income and double its profit margin from 2011 to 2012.

2009 2010 2011 2012
Revenue $1.4B $1.3B $1.1B $850M
Net Income $29M -$4M $70M $122M
EPS $0.55 -$1.74 $3.89 $6.63
Shares 17M 17M 18M 19M
Profit Margin 2.0% (0.3%) 6.5% 14.4%

Another big advantage is debt reduction to the tune of $332 million in 2012. The stock now pays a 4.1% dividend yield.

The company reported mixed results for the first quarter, with cost controls helping to make up for soft same-store sales. Analyst Will Slabaugh of Stephens Inc. noted that the “uneven” economy was a cause for the slight sales decrease at Applebee’s.

Chief Executive Julia Stewart noted that IHOP is “still number one in market share in family dining, and people have always loved us and thought of us first and foremost.” Of the eight analysts following the stock,  five have a hold recommendation and three a buy, with the average target price for the stock being $77.80, a 7.5% upside. With DineEquity Inc (NYSE:DIN), Michael Dell’s hedge fund could be on target.

Let’s drive

MSD Capital’s second largest holding is Asbury Automotive Group, Inc. (NYSE:ABG), making up 21%, according to the fund’s 13F. Asbury Automotive Group, Inc. (NYSE:ABG) is one of the largest automotive retailers in the United States. It sells, finances, and services a diverse range of foreign and domestic autos.

Asbury Automotive Group, Inc. (NYSE:ABG) saw EPS improvement of 42.6% during the first quarter, making it the fourth consecutive quarter of record results. During 2012 EPS was up to $2.64 compared to $1.42 in the previous year. The market is expecting Asbury Automotive Group, Inc. (NYSE:ABG) to grow EPS to $3.12 this fiscal year.

Thanks to rising demand in autos, analysts think Asbury Automotive Group, Inc. (NYSE:ABG)’s sales will be up 9.2% in 2014 and 4.9% in 2014.  The market expects U.S. light vehicle sales volume of 15.4 million units in 2013, up from 14.4 million in 2012. The benefits to Asbury Automotive should be great. The auto retailer is expected to see a bright future, with analyst expecting EPS to grow at an annualized 23.8% over the next five years, which puts its PEG at a mere 0.55.

Let’s dress

PVH Corp (NYSE:PVH) is another top holding, and accounts for 15.1% of the portfolio. PVH Corp (NYSE:PVH) is a maker and distributor of men’s and women’s apparel under brands such as Van Heusen, IZOD, Calvin Klein, and Tommy Hilfiger.

The recent big move for PVH Corp (NYSE:PVH) is its acquisition of Warnaco Group, which is expected to spur growth in the Asian markets, where Warnaco has an impressive presence. The acquisition will also put the Calvin Klein brand under one roof, whereas Warnaco previously licensed the Calvin Klein jeanswear and underwear businesses.

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