Starbucks (SBUX) , PPG Industries (PPG) and Campbell Soup (CPB) . Three hallowed names. Three companies that could be under siege, or be helped along constructively, by large shareholders who want more price appreciation than these companies have given.
Yesterday we learned that Trian, the investment vehicle of Nelson Peltz, has built a 2.9% stake, or 7 million shares, in PPG -- a position largely built earlier in the year.
Bill Ackman has accumulated 1.1% of Starbucks, an $878 million stake aided by the increase in the company's shares after the announcement of the new stake.
Dan Loeb's Third Point, meanwhile, boosted its stake in the stock of Campbell's Soup from 5.65% to 6.9% -- and Loeb continues to put pressure on the company to replace its board.
Which ones should you buy?
I think that the answer is none of them -- unless you like the fundamentals -- because these large fund managers don't work for you and won't tell you what they are going to do.
Let's take Campbell Soup. The hallowed, Camden, New Jersey company, has a board with 40% of its directors set to vote against Loeb in a proxy contest where Loeb wants to throw them all out and perhaps get a sale or a break up on the table. Something, anything to create value, which would be quite a change from the incumbent group.
Anyone who has followed Campbell's knows that this current board has had a hand in destroying an immense amount of value in this, one of THE poorest-performing stocks in the food space over the last decade. The company's sacking of CEO Denise Morrison in May of this year revealed a totally dysfunctional board that okayed a strategy to buy anything, some fresh stuff, some snacks including the gigantic Snyder Lance, which Campbell's borrowed $5.3 billion to pick up last year. The acquisition immediately soured, as the target disappointed in the quarter it was purchased. The company was probably worth about half to two-thirds of what Campbell paid. Now the company is saddled with way too much debt -- and is truly a first-class disaster.
I agree with Loeb that a new board is needed and the company should sell itself quickly. This current board doesn't deserve to steward this asset even if they are family members that are in control.
I disagree with the characterization that Campbell Soup is too small to matter to a company like Kraft Heinz (KH) . It has fabulous brands, but the balance sheet is too painful to recommend. That said, it would have opportunities to turn things around, with a new board that Loeb wants, and it has a 3.7% yield. I can see a speculator taking a position in the name.
I don't think Ackman has anything necessarily to offer Starbucks. When I read through his brief yesterday, I saw nothing new or revelatory: China should get better, U.S. can get better. All obvious stuff.
I think China is getting better. I think the U.S. won't get better until the fourth quarter. The buyback has been aggressive. I have been saying the company is turning. But I think the stock's moved up so fast now on the back of this activist investment that it is a problematic, because I don't think this quarter is all that great.
Why not wait? Ackman has done well with restaurant chains, most recently Chipotle Mexican Grill (CMG) . I like the management of Starbucks and I think Kevin Johnson, the CEO, is slowly but surely turning the ship. I hope he is not interrupted or distracted in the process by Ackman. Couple down and then a bunch up. Chipotle's a buy because Brian Niccol, who was on Mad Money last week, is terrific -- not because of Ackman's investment.
PPG? I don't know what to say. The stock, after being a great performer under Peltz's friend Charles Bunch, has done nothing since Michael McGarry has taken over. Earlier this year, the company lost a key outlet for its Olympic Brand of paint to Lowe's (LOW) , which was really painful. It had a sloppy accounting scandal and now a huge, and unexpected -- at least by the management -- shortfall in paint for automobiles. I bet Nelson, who knew Chuck Bunch from the old Heinz board, wishes that Chuck were back running things. I don't think you can own it after that shortfall of great magnitude.
How to Play It
So, Campbell's is a speculative play that the company's shareholders will do something rational and replace the board. Starbucks? A little high after the Ackman purchase -- and it is too early to make a bet given the current trends -- but I like CEO Johnson's work so far, and the buyback is terrific, as is the improvement in China. PPG? Who the heck knows. It could put itself up for auction.
I just don't know who would buy it -- and McGarry would fight tooth and nail to stop it from happening.
All in all, the stocks of Starbucks and PPG probably won't react longer term to these two engaged investors, they will react to the fundamentals, which in SBUX case are improving and in PPG's are getting worse.
Campbell's? Loeb wins, you make money. Loeb loses? You are in trouble with a very risky investment.