U.S. markets closed
  • S&P 500

    3,269.96
    -40.15 (-1.21%)
     
  • Dow 30

    26,501.60
    -157.51 (-0.59%)
     
  • Nasdaq

    10,911.59
    -274.00 (-2.45%)
     
  • Russell 2000

    1,538.48
    -23.10 (-1.48%)
     
  • Crude Oil

    35.72
    -0.45 (-1.24%)
     
  • Gold

    1,878.80
    +10.80 (+0.58%)
     
  • Silver

    23.72
    +0.35 (+1.52%)
     
  • EUR/USD

    1.1650
    -0.0029 (-0.24%)
     
  • 10-Yr Bond

    0.8600
    +0.0250 (+2.99%)
     
  • GBP/USD

    1.2951
    +0.0028 (+0.22%)
     
  • USD/JPY

    104.6200
    +0.0100 (+0.01%)
     
  • BTC-USD

    13,476.54
    -58.84 (-0.43%)
     
  • CMC Crypto 200

    265.42
    +1.78 (+0.68%)
     
  • FTSE 100

    5,577.27
    -4.48 (-0.08%)
     
  • Nikkei 225

    22,977.13
    -354.81 (-1.52%)
     

Avoid Billionaire Nelson Peltz’s Top 5 Stock Picks

Inan Dogan, PhD
·7 mins read

A few weeks ago billionaire Nelson Peltz’s Trian revealed its 13F portfolio. Nelson Peltz has a great reputation as a long-term activist investor. Probably because of this reputation effect whenever he discloses a new activist position, we see a pop in that stock's price.

We disagree. Nelson Peltz was a great long-term investor but he isn’t anymore. Insider Monkey tracks the stock picks and performance of more than 800 hedge funds. Our research has shown that hedge funds’ overall performance has been going down over the last decade. Most hedge fund managers with stellar reputation can’t generate any meaningful alpha anymore. That’s why we now focus on the 100 best performing hedge funds. Unfortunately Nelson Peltz isn’t among the 100 best performance hedge fund managers at the moment. Nelson Peltz has been burned by ill-timed investments such as General Electric (GE) in recent years.

We aren’t really cherrypicking a poor performing stock from Peltz’s portfolio. If you had invested in Peltz’s portfolio using the same portfolio weights used by Peltz, you would have returned 0.71% per month between 2014 and 2017. Unfortunately S&P 500 Index returned 0.99% per month during the same period. This means Nelson Peltz’s stock picks underperformed the market by more than 3.5 percentage points annually over these 4 years. If I went to Nelson Peltz with this 4 year "track record" and asked for some capital to invest in this strategy, he probably wouldn't have given me a single dime. However, he is fine charging his investors an arm and a leg for the same portfolio of stock picks.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's take a glance at Nelson Peltz's top 5 stock picks:

TRIAN PARTNERS
TRIAN PARTNERS

Nelson Peltz of Trian Partners

The #1 position in Peltz's portfolio is Sysco Corporation (NYSE:SYY). Peltz increased his stake in SYY by 3% during the second quarter. Peltz didn't make any changes to his Sysco Corporation position during the first quarter. This means when the stock declined from $85 to $31 in the middle of March, Peltz didn't do a thing. He probably didn't see the coronavirus crash coming either. We did. We sold broader market ETFs and travel related stocks short at the end of February to protect our subscribers against a sharp decline in the market. Having said that Peltz did the right thing by not selling any SYY shares and adding slightly to his position during the second quarter. SYY shares are likely to outperform the market over the next 1-2 years.

The #2 position in Peltz's portfolio is Procter & Gamble (PG). Peltz slashed his PG holdings by 65% during the second quarter. Procter & Gamble is barely growing its topline, but trades at a forward PE multiple of 26. It also pays a modest dividend with a yield of 2.3%. Not bad if you are retiree looking for some stable income but this isn't the type of stock we recommend in our monthly newsletter. By the way our monthly newsletter's recommendations returned 111% over the last 3.5 years and outperformed the S&P 500 ETFs by 58 percentage points. We just recommended a new dividend stock that yields 1.5% but will be growing its yield by 20% annually for the foreseeable future. This high growth stock trades for less than 17 times of its earnings. How come I can find gems like our new recommendation but a billionaire investor like Peltz can't?

The #3 position in Peltz's 13F portfolio is Mondelez International (NASDAQ:MDLZ). This is one of Peltz's good stock picks actually. The company doesn't really have any topline growth but managed to increase its earnings dramatically over the last 3 years. It currently trades for a forward PE multiple of 20 and has a decent yield. Peltz didn't make any changes to this position during the second quarter.

The #4 position in Peltz's 13F portfolio is The Wendy's Company (NASDAQ:WEN), one of Peltz's best all time stock picks. At the first quarter of 2012 when WEN shares were trading below $5 Peltz owned 83 million shares of WEN, worth $416 million. As WEN started to climb Peltz wanted to trim his exposure and sold more than 18 million shares during the first quarter of 2014 when WEN shares were trading above $8. Again, during the second quarter of 2015 when WEN shares trading above $10 Peltz sold nearly 11 million more shares. The following quarter he sold another 13 million shares reducing his share count to 40 million. At the end of 2016 Peltz bought 4 million shares around $13.5. However, he disposed of 5.5 million shares 6 months later at $16. He sold another 7.5 million shares during the first half of 2018 at $17, reducing his stake to below 32 million. Peltz cut his stake by another 3 million in early 2019 at around $17.5. Finally this sale was followed by another sale of 2 million shares during the third quarter of 2019. Currently Trian Partners own 26.6 million shares of Wendy's valued at $580 million at the end of June. If Peltz hasn't sold a single share of Wendy's since 2012, his stake would have been worth more than $1.8 billion. Do you take some chips off the table as one of your core investments double or triple in value? At Insider Monkey we let our winners run.

Finally the fifth largest position in Peltz's 13F portfolio is General Electric (NYSE:GE), a stock pick from hell. Peltz trimmed his GE stake by 8% during the second quarter to 59 million shares. Peltz initially disclosed a 90.6 million share stake in GE during the third quarter of 2015. He probably paid about $24-$25 per share. He quickly cut this stake down to 77.8 million shares probably because he thought GE shares would see a pop after he discloses his stake and he can make a small profit from that pop. He was actually right. GE shares were trading above $30 at one point during the fourth quarter of 2015. Peltz probably made about $300-$400 million from that trade. Unfortunately his GE stake stayed around 70 million share count over the last 5 years as GE shares drop all the way from $30 to $6 today. Peltz losses from his GE investment since the end of 2015 is in the neighborhood of $1.5 billion, more than the total profit he generated by investing in Wendy's.

By the way you can track the quarter to quarter changes since 2010 in Nelson Peltz's 13F portfolio free of charge on our website. If you'd like receive my articles in your inbox please subscribe below or on our homepage: Disclosure: No positions. This article is originally published at Insider Monkey.