By Marshall Hargrave
Billionaire Nelson Peltz runs a very concentrated portfolio of only 10 stocks, with the top five making up nearly 75% of his 13F portfolio. Peltz founded Triarc Companies in 1997, which is a publicly traded entity owning brands such as Snapple and Arby's. Eight years later, Peltz founded Train Fund Management to continue to get his hands "dirty" with struggling companies. Peltz targets underperforming assets by taking an activist position, where he then encourages a spin-off or other aggressive growth strategies. There are five high-yield dividend stocks that Peltz owns, and we believe that they are not only great turnaround plays, but that they offer solid downside protection as well (check out all of Peltz's newest picks here).
H.J. Heinz Company (HNZ) was Peltz's 10th largest 13F holding and pays a dividend that yields 3.5%. Heinz manufactures a variety of food products from ketchup to soups and frozen meals. Recent quarterly EPS showed that Heinz is at least meeting expectations, with actual earnings coming in at $0.90, compared to consensus of $0.88.
Long-term growth will be driven by exposure to international markets and the potential for another key acquisition. Compared to its food packaging peers, Heinz trades near the high end of the industry at 19 times trailing earnings. Heinz also sports highest beta of its peers at 0.5, but we believe this is warranted given the food company's high growth potential, with over 30% of sales coming from emerging markets.
Tiffany & Co. (TIF) made up Peltz's ninth largest 13F holding, and the jeweler pays a dividend yield of 2.2%. Tiffany expects to see sales up 6% in 2013 with various expansion efforts in new markets, including the opening of 19 new stores. For the first half of Tiffany's current fiscal year, the specialty retailer has seen robust international growth due to strong same store sales. Sales in the Americas were down 3%, but Asia was up 2% and Japan was up 11%.
Tiffany trades at a P/E of 18x, which in its niche market is relatively low -- especially compared to the likes of Blue Nile's 70x -- and the specialty retailer also has an expected long-term EPS growth rate of 12%. Billionaire Steven Cohen of SAC Capital was the top fund owner of Tiffany after upping his stake by 3500% in 3Q (see Steven Cohen's big moves).
Lazard Ltd (LAZ) is the eighth largest 13F holding for Peltz and pays a 2.6% dividend yield. Lazard is expected to see 12% sales growth in 2013 with an improving market for M&A activity. Yes, deals still remain depressed, as M&A transactions are down around 20% YTD, but growth has turned bullish as of late.
With nearly $160 billion in assets under management, Lazard now plans to turn to its investment banking segment to help drive growth, including more expansion in the American and European markets. Being the activist shareholder he is, Peltz took a stake of over 5% in Lazard in June on the premise that the stock remains deeply undervalued.
Mondelez International Inc (MDLZ), formerly Kraft Foods, changed its name after spinning off its North American grocery business. This international food company pays a 2.7% dividend yield and is Peltz's sixth largest holding. With more exposure to international markets -- roughly 80% of sales coming from outside of North America -- Mondelez should be able to outpace its major food competitors, such as General Mills (GIS) and Kellogg (K).
This year's revenues will also be driven by the high-growth developing markets of Latin America, Asia and Eastern Europe, which are estimated to make up 45% of total sales. Compared to its former counterpart -- the North America grocery segment, which trades as Kraft Foods Group on the NASDAQ -- Mondelez has a long-term EPS growth rate that is over twice that of Kraft. Billionaire Warren Buffett was the top fund owner of Mondelez during 3Q with over 30 million shares (check out Warren Buffett's newest picks).
The Wendy's Company (WEN) is Peltz's fifth largest 13F holding and made up 10% of his firm's 13F portfolio last quarter. Wendy's pays a 3.4% dividend yield and has made decent strides of late to take market share from McDonald's with a focus on premium ingredients. Wendy's has seen big swings in its last few quarterly earnings reports, but it still expects to remain on target in 2013, as it plans to continue its restaurant-remodeling program. Wendy's also expects to maintain a healthy capital structure, one that has allowed the fast food chain to double its quarterly dividend to 4 cents, while announcing a $100 million share buyback program.
To recap: Peltz is an activist value hunter, looking for opportunities that simply need a helping hand. Peltz has recently found value in a couple food packaging companies -- Heinz and Mondelez. The latter's spin-off should help unlock shareholder value, while a potential Heinz split could do the same for the food company. Wendy's is an interesting turnaround story, and it appears that Tiffany and Lazard are solid value plays with robust growth prospects.