5 Stocks Targeted by Billionaire Activist Investor Dan Loeb
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Billionaire Daniel Loeb founded his New York-based hedge fund Third Point Management in 1995 with just over $3 million. Since its inception, the fund has returned roughly 25% annually. Loeb graduated from Columbia University in 1983 and worked at Jefferies & Company and Citibank before starting Third Point. Loeb is considered an activist investor that takes outsized positions to “strong arm” companies into making changes, so to speak. We believe that Loeb has invested in five companies that are going through a corporate event, fitting his strategy, but these companies also pay solid dividends that help income-seeking investors weather the interim (check out Dan Loeb’s newest picks).
United Technologies (NYSE: UTX) pays a 2.7% dividend yield and acquired Goodrich Corp. earlier this year. Including Goodrich’s contribution to sales, United Technologies’ revenue is expected to be up 3% this year, and 10% in 2013 following a full year of the Goodrich integration.
United Technologies has managed to continue growing EPS with margin expansion, where 2011 earnings were 12% higher than its previous EPS peak in 2008, despite revenues that were 4% lower than this period. Compared to other diversified tech product peers, United Technologies trades on the low end. Shares sport a trailing P/E of 14x, which stack up favorably to Honeywell’s 21x and GE’s 16x multiples. Joining Loeb in United Technologies investor was fellow billionaire Ken Fisher, founder of Fisher Asset Management (see Ken Fisher's favorite stock picks).
Newell Rubbermaid (NYSE: NWL) is Loeb’s 24th largest holding, and the fund manager increased his stake in the company by 100% last quarter. Newell pays a 2.7% dividend yield and operates in a relatively niche market, making food storage containers. Newell trades with a beta of 1.7 and is up 35% year to date compared to the S&P 500’s 13% return.
Newell is looking for continued growth, with a new long-term plan that includes restructuring operations to focus on emerging markets outside of the U.S., which accounts for a whopping two-thirds of revenues. Latin America and Southeast Asia are two areas in particular that will be important to the company. This restructuring is expected to save Newell upwards of $325 million by 2015. Billionaire investor and founder of Citadel Investment Group – Ken Griffin – was the top fund owner in Newell last quarter (check out Ken Griffin’s latest picks).
Coca Cola Enterprises (NYSE: CCE) is Loeb’s 17th largest 13F holding and pays a 2% dividend yield. In the third quarter, Coca Cola Enterprises’ revenues were down 3.3% year over year, while earnings dropped 7% YOY. Last year, Coca Cola Enterprises gave up its relatively stable North America bottling operations to Coca-Cola for more access to European consumers. The transaction with Coca-Cola included the purchase of bottling operations in Sweden and Norway. Coca-Cola Enterprises trades at a discount to other major bottling peers at only 13x earnings, and appears to be a solid value play.
WellPoint (NYSE: WLP) is Loeb’s 19th largest 13F holding and pays a 2% dividend yield. WellPoint expects operating revenues to be up 1.4% on the back of higher pricing and a rising number of fully insured members. With the recent acquisition of Amerigroup Corp., WellPoint should be able to gain market share in the rapidly growing Medicaid health segment. WellPoint’s 8x P/E is below other managed healthcare peers including the likes of UnitedHealth (10x) and Cigna (10x). Couple its industry-low P/E with a robust expected EPS growth rate of 11.5%, and this stock’s PEG is well below 1.0, making it quite the ‘growth at a reasonable price’ opportunity.
Last but certainly not least, Hillshire Brands (NYSE: HSH) pays a dividend yield just under 2% and has traded relatively flat since its mid-2012 spinoff from Sara Lee. With a market cap of around $3.5 billion, it has been speculated that one of the larger packaged meat producers – such as Tyson or Hormel – might be interested in purchasing Hillshire. The reshaped company should be better positioned to reduce costs and make key acquisitions, hence its premium valuation at 17x earnings. A solid demand for the company’s consumer staple products should be enough to drive a long-term earnings growth target of 10% annually.
To recap: we believe that Dan Loeb has found five companies in which recent ‘circumstances’ have redirected their business models, but each pays a solid dividend that will assist with downside protection. United Technologies and WellPoint will see integration risks from their acquisitions, but should come through as industry leaders. Coca-Cola Enterprises and Newell are working on full migrations to the international marketplace. Hillshire is a recent spinoff that is asserting itself as a standalone company, but it may also be a takeover candidate going forward.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!