3 Interesting 13F Buys (Q2-08)

Yesterday the 13F’s were released for funds managing over $100 million. Below is a list of 3 picks that I found interesting:

1. Dr Pepper Snapple Group, Inc. (::yahoo(“DPS”)::)
Nelson Peltz (Trian), David Einhorn (Greenlight), Bill Ackman (Pershing)

Dr Pepper SnappleIn May, Dr Pepper was spun off of Cadbury Schweppes and traded in the $20-26 range until the end of the quarter. Shortly after the spin-off, I wrote this post citing Dr Pepper as a potential bargain. It looks like some large activist investors took my advice, loading up on DPS during the second quarter. (Peltz received shares from his Cadbury stake.) All together, the three managers own just over 13% of the entire company. In fact, I’m not sure why Pershing Square hasn’t been required to file a 13D/13G with over 5% of the company.

All three of these investors have been known to be activists. So, if they continue to acquire shares, one of them may attempt to influence management. One possibility for value creation is to sell or spin-off Dr Pepper’s bottling operations. This is a much lower margin, capital intensive business than selling syrup concentrate (their primary profit source). In 1986, Coca-Cola spun off its bottling operations as Coca-Cola Enterprises. Less than two years later, Warren Buffett acquired his stake.

2. American Express Company (::yahoo(“AXP”)::)
Ken Shubin Stein (Spencer), Glenn Greenberg (Chieftain)

American ExpressKen Shubin Stein made the case for American Express both at the Value Investing Congress and at Value Investors Club. The basic thesis is that American Express has a huge moat, and it’s price has be knocked down due to concerns about the economy and temporary issues with bad debt. It looks like these problems are either based on short-term sentiment, or are easily fixable by AMEX management. This is a typical Buffett-type investment, and has been named by some as a potential takeover target for Buffett himself (he already owns 13%).

3. Pfizer Inc. (::yahoo(“PFE”)::)
Bruce Berkowitz (Fairholme)

The Fairholme Fund’s acquisition of Pfizer shares is not surprising, and fits in with their recent theme of buying healthcare stocks. I could speculate the specific reasons for this purchase, but it’s probably best to hear it straight from Bruce Berkowitz:

$17 billion of free cash, which turns out to be over $2 per share of free cash for a triple-A quality company. This is the largest pharmaceutical company in the world trading under $20 per share.

[…] they are all worried about Lipitor and the new president. Lipitor doesn’t come off patent for another three years, and the company is dramatically changing. There is a new CEO with a wonderful strategy.

You will see Pfizer, in my opinion, do a lot more joint ventures. I think they will become almost like Exxon Mobil, which is really a merchant bank that has the distribution, size and cash to partner up with a lot of people around the world. Pfizer will do that. People just don’t realize the number of joint ventures they have and the power of their distribution channel.

Disclosure: As of its writing, we have no interest in any company mentioned in this post.

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