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. (DPS)
Nelson Peltz (Trian), David Einhorn (Greenlight), Bill Ackman (Pershing)

In 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 (AXP)
Ken Shubin Stein (Spencer), Glenn Greenberg (Chieftain)

Ken 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. (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.

I’ll try as much as possible to keep this tradition up every quarter. Today is the day that the 13F’s are released for funds managing over $100m. Below is a list of 4 picks that I find interesting:

1. WellCare Health Plans (WCG) — Pabrai Investments, Fairholme Fund — I don’t know much about healthcare companies, but Wellcare seems like it might be a very low risk, high uncertainty situation. Recently, a summary of Pabrai’s thesis on Wellcare was posted on the Value Investing Congress Blog. Using the last quarter with information available, WCG is trading at an EV/EBIT of about 1.8x (!).

2. EchoStar Corp. (SATS) — Greenlight Capital, Fairholme Fund (spin-out) — Spun off from Dish Network (formerly EchoStar) back in January. Has multiple holdings, including a set-top box business, SlingMedia, and 7 satellites. SATS could be extremely undervalued if you add up the valuations of its separate companies. See the VIC Writeup for more details. Charlie Ergan, Chairman and major shareholder, is extremely smart and should never be underestimated.

3. WellPoint Inc. (WLP) — Springhouse Capital, Greenlight Capital, Fairholme Fund, Berkshire Hathaway, Baupost Group — Quite the lineup. Another beat-down healthcare company, but with less uncertainty. If you net out cash and unrelated investments, enterprise value is about $16B. Pre-tax income in the past year was $5.3B. So, even if WLP has lower earnings going forward, it’s trading for only 3x EBIT. It may pay to find out. (By the looks of it, healthcare companies must have a thing for logos with little swively waves in them.)

4. American Woodmark (AMWD) — Stadium Capital, Akre Capital, Fine Capital — A manufacturer and distributer of wood cabinets. Trading at about 8x TTM pre-tax free cash flow. It looks like they haven’t done well in the last few years, but if they can get back on track this is a very cheap stock. I don’t know a lot about wood prices, but it looks like gross margins have fluctuated widely in the past.

13F buys archive: Third Quarter 2007; Fourth Quarter 2007
Related link: Search for filings on the SEC website

Disclosure: We own a small position in SATS. This is not a recommendation to buy or sell any security.

On Wednesday the 7th, Dr Pepper Snapple Group (DPS) officially began to trade. Its $25 price tag is lower than many expected after the soft-drink maker was spun-off of its parent company, Cadbury Schweppes.

Because spin-offs in general beat the market (and can make for excellent hunting grounds), I’m always looking for potential purchases. DPS stands out because of its well recognized brand names, competitive advantage, and unique spin-off situation.

Cadbury, its prior owner, trades on the London Stock Exchange. But when DPS was spun-off, it traded on the NYSE. This is a problem for mutual funds and institutions in the UK that owned Cadbury. They can’t or don’t want to hold a foreign-traded security. So more than likely (this may have already started), these institutions will sell their newly received DPS shares without regard to price.

Some of the brands of DPS include: Dr Pepper, Snapple, 7 UP, Motts, Sunkist, A&W, Hawaiian Punch. This post isn’t meant to be a complete analysis of the investment, just my initial thoughts on a potential opportunity.

Comparisons

The table below compares DPS with other soft-drink and consumer goods companies.

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Keeping up tradition from the last quarter, below is a list of 5 stocks that were added to the portfolio’s that I watch. These are either potentially interesting investments or just companies to keep an eye on.

1. Sears Holdings (SHLD) — Fairholme Fund, Pabrai Investments, Pershing Square — More super-investors realizing that Sears isn’t your traditional retail investment. Real estate and brand liquidation values provide downside protection (as opposed to being Lampert’s “strategy” as some claim). There are many possibilities for upside, but here are a few: (1) The sale or monetization of coveted assets; (2) A successful turnaround of the retail stores; (3) The allocation of capital from poor-performing cash generators (Kmart) to higher return divisions (Lands End) or new investments.

2. Acxiom Corp. (ACXM) — ESL Investments (Eddie Lampert) — An information services provider, trading at just over 4x cash flow. For the year ending March, 2007, Acxiom had before-tax free cash flow of $374 million. Currently, the entire company sells for $1.6 billion (including debt), only 4.3x that number. You can see from an amended 13F filing that Eddie Lampert’s purchase price was probably somewhere around $25 per share. So if it was cheap then, he must think it’s extremely cheap now.

3. Office Depot (ODP) — Gotham Asset Management — Joel Greenblatt, author of The Little Book That Beats the Market, took a small position in Office Depot, the second largest office products retailer. If ODP can maintain its competitive position and earnings power, it looks like a good buy. It’s run by Steve Odland, former CEO of AutoZone (another past Greenblatt holding), who’s working on improving margins. In the December 2007 issue of Value Investor Insight, Randall Abramson said he believes ODP could have earnings power of $3 per share in a few years. That would put the current price at just under 5x earnings.

4. Kraft Foods (KFT) — Berkshire Hathaway — Buffett’s widely reported 8.6% stake in Kraft makes him the single largest shareholder. Kraft was fully spun-off of Altria Group earlier last year, when shares traded over $32 per share. This is another one of Buffett’s large-cap bets that will probably outperform the market over time. A great company that trades for 13.5x last year’s operating income. This may be a good selection for the “defensive” investor. But for the “enterprising” investor, there are probably more advantageous purchases that could be made in smaller, cheaper stocks.

5. Walgreen Co. (WAG) — Longleaf Partners, Greenlight Capital — I haven’t looked at Walgreen’s, but it could be interesting. It’s a great company, but is it selling for a cheap price? Here is the link to a recent write-up at Value Investors Club.

Related post: 5 Interesting 13F Buys (Q3-07)
Related link: Search for filings on the SEC website
Related link: More super-investor portfolio’s at GuruFocus

Disclosure: We own shares in SHLD. This is not a recommendation to buy or sell any security.

ValueVision Media (VVTV) - $5.58

Although I planned on writing up my entire thesis for VVTV, things got a little busy and I never ended up finishing it. Thankfully, someone over at Value Investors Club has done my job for me. Click here to see david101’s writeup on ValueVision (available via a 45-day delay).

I would also reiterate that under $6 per share this is a very “heads I win, tails I don’t lose much” type of investment. There is uncertainty surrounding a few different aspects of the investment (like cable distribution costs, the transition to digital, new internet ventures) but little to no downside based on hard assets and cash. If a few things go right ValueVision could be worth 2-3x its current price. In addition to the information provided in the above writeup, I’ll add a few of my thoughts below:

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