Icahn Protégé is Cashing Out of Ralcorp Holdings (RAH)

Ralcorp Holdings, Inc. (NYSE:RAH) saw Corvex Capital dump 30% of its shares per a 13D filing this week. Corvex has reduced its stake from 2.9 million shares to just over 2 million following last month’s announcement that ConAgra Foods, Inc. (NYSE:CAG) had finally agreed to purchase rival food company for $5 billion or $90 per share. Keith Meister, a protégé of famed activist investor Carl Icahn, founded Corvex Capital in 2011. Billionaire George Soros seeded Corvex with $250 million and since then Meister has utilized a similar activist strategy as his former mentor.

As Corvex makes its exit from the food company we believe new investors may funnel in to capitalize on the merger-arbitrage opportunity. Investors can currently make money via a merger-arbitrage strategy, where the stock is only trading at $89.20 – offering investors a 1.8% annual yield assuming the deal closes in roughly six months. Merger-arbitrage is a strategy commonly employed by hedge funds when there is reasonable certainty that the deal will close (check out merger-arbitrage strategies here).

Investors can also find value in ConAgra apart from merge-arbitrage, especially when coupling Ralcorp’s food packaging portfolio. ConAgra is expected to see FY2013 sales up 7% and has made six acquisitions since 2011. Helping drive the growth will be Ralcorp’s strong portfolio of private label products that will compliment ConAgra’s branded products. ConAgra trades at one of the lowest valuations in the industry with a trailing P/E of 20x, but the food company also trades at a forward P/E of only 14x. Jim Simons is one of Ralcorp’s big name shareholders (check out Jim Simons’ top picks).

Campbell Soup Company (NYSE:CPB) pays one of the top dividend yields at 3.2% and is also one of the cheapest stocks in the industry with a 15x P/E. Putting the food company’s valuation in perspective is Campbell’s industry-low growth rate – 5-year expected earnings growth rate of only 5% – and high debt ratio of 45%. George Soros took a new position in this food company last quarter (see George Soros’ newest picks).

The Hershey Company (NYSE:HSY) has the managed to be up 20% year to date despite its low beta of 0.25. Hershey also pays a decent dividend yielding 2.7% and has one of the better 5-year growth rates at 10%. Although the food company appears to be a solid investment, on a valuation basis it trades a bit rich at a 2.4 PEG. Billionaire Ken Griffin – founder of Citadel Investment Group – is one of the top name shareholders loving Hershey (see Ken Griffin’s new picks).

Continue reading to see ConAgra’s top competitor…