3 Interesting Reductions in Bill Ackman's Holdings

Market Folly is a great blog that provides regular updates on the movements of famous money managers. Tuesday, they posted an update on Bill Ackman’s latest 13-F filing. I found the 3 positions he reduced to be interesting.

• Dr. Pepper Snapple Group (DPS): Reduced position by 51%
• Wendy’s (WEN): Reduced position by 15%
• Sears Holdings Corp (SHLD): Reduced position by 39.5%

When I first had a look at DPS after the spinoff, I concluded, with the help of readers, that it didn’t offer any real value compared to KO or PEP.

The Wendy’s presentation puts forward a case why Wendy’s was/is severely undervalued, but there were some aspects I didn’t understand and numbers which I didn’t want to take for granted. I took the education lesson and moved on.

I also never became interested in Sears Holdings (or Wendy’s) because the basis for its value was hidden in its real estate. VVTV is a case where a majority of its assets is also tied up to tangibles but I continue to hold because I see it as a better opportunity than either Sears or Wendy’s. However, real estate special situations are not part of my usual strategy.

Disclosure: I own VVTV at the time of writing.

Comments

[Rubens Morse]

Could you elaborate on how you compared DPS with PEP and KO and didn't find it attractive?

DPS is a misunderstood company, a combination of syrup company (like PEP and KO) with a bottler (like CCE and PBG). It should trade at an EV/EBITDA multiple somewhere in between, but is valued right now very close to the bottlers.

2009 Feb 25 02:28 PM

[Jae Jun]

If you look at all the numbers and look at its profit, margins and return pattern, it acts much more like a bottler that sells syrups. Not a combination.

Also if you consider its product base as well as its distribution, their market is very limited with little growth potential as Schweppes holds the rights to the international market.

2009 Feb 25 08:24 PM

[RITAF]

Perhps it is time to take a new view on investments when Sears sells for 4 times GE. Sure Sears has a lot of value in its real estate. But why invest in a company that needs to dissolve itself and sell the parts? Sears might instead very well become again the middle-class department store that cautious citizens might support. I see the year to come as a tremendous opportunity for Sears.

2009 Feb 26 09:24 PM