Carl Icahn, Dan Loeb, and David Einhorn are the activist investors who get the most headlines - but none of them are the one who has squeezed the most value out of a stock.
By that measure, the most successful activist investor is Nelson Peltz of the Trian Partners hedge fund.
Peltz has an amazing track record for getting tremendous returns out of the stocks he targets, although the payoff sometimes takes several years.
His greatest success has been with The Wendy's Co. (Nasdaq: WEN), which has enjoyed a stunning 97% gain since Peltz began engineering changes to the fast food chain in mid-2011.
And the strong performance of Wendy's is not just a one-time coincidence. When Peltz takes a pronounced interest in a company, double-digit gains almost always follow.
Here's how Peltz does it.
You Can Profit More from Nelson Peltz Than Other Activist Investors
While most stocks targeted by activist investors enjoy a price rise, it usually isn't terribly high.
Since most stocks that end up in the crosshairs of activist investors are underperformers, the greatest benefit for existing shareholders is that the trend is almost always reversed. Big gains, however, rarely follow.
But Nelson Peltz is the exception.
"I think it's because when Nelson Peltz takes a substantial position in a company, he treats it as if it is his own business," noted CNBC "Mad Money" host Jim Cramer recently. Cramer discovered Peltz's outstanding track record while doing research for a book.
Wendy's is but one example. Peltz was instrumental in getting the company to revamp its menu, remodel its restaurants, and refocus its marketing over the past few years. The result has been the 97% pop in the stock price, with a 75% increase coming in just the last year.
The Wendy's story isn't over. Earlier this month WEN said it expected 2014 earnings to come in between $0.34 and $0.36 a share - well above analysts' consensus expectations of $0.29.
Take a look at these other Nelson Peltz activist investing success stories:
- H.J. Heinz: When Peltz got involved with Heinz, the stock had been slumping. He encouraged management to cut costs, buy back shares, and refocus the company on its core brands. By the time Warren Buffett's Berkshire Hathaway (NYSE: BRK.A, BRK.B) bought it last year for $23 billion, the stock had shot up 75%. "Management did a great job executing the turnaround, but Peltz was the catalyst for a lot of the change," John Sini, a portfolio manager at Douglas C. Lane & Associates Inc., told Bloomberg News last year. "We are looking at this price now and saying, 'Thank you, thank you, thank you.'"
- Ingersoll-Rand PLC (NYSE: IR): Peltz took an interest in this manufacturer of industrial and commercial goods back in mid-2012; the stock is up 77% since then. Among the moves Peltz influenced was a spinoff of IR's security division, a $2 billion share repurchase program, and a 31% increase in the dividend.
- Legg Mason Inc. (NYSE: LM): Peltz owns 10% and has a seat on the board of the once high-flying financial firm that fell on hard times after the departure in 2008 of founder Raymond "Chip" Mason. Peltz helped get Legg Mason back on track by playing a leading role in selecting current Chief Executive Officer Joseph A. Sullivan, who assumed the top post in February 2013. The change in leadership worked; since December 2012, LM is up 75%.
This "Peltzing" is a phenomenon of particular interest now that he has a new top holding...
Mondelez (Nasdaq: MDLZ) Will Get "Peltz'd"
Although not a household name, most Americans would easily recognize Mondelez International Inc.'s (Nasdaq: MDLZ) family of brands, which includes Nabisco, Cadbury, Trident gum, and Tang. The company was spun off last year from Kraft Foods Group Inc. (Nasdaq: KRFT).
Given Nelson Peltz's exceptional success among activist investors, Mondelez shareholders should be thrilled that the snack food company is now his top holding.
Just this week (Tuesday), Mondelez named Peltz to its board of directors. He owns 40.9 million shares of the company, or 2.3%.
Peltz already has ideas on how Mondelez could boost its operating margin from 12% to 18% (which would do wonders for Mondelez stock, currently trading at about $34.29).
He also would like to see the company change its name, which is a combination of "monde," the Latin word for "world" and "delez," a proxy for "delicious."
"I think that with the right execution, Mondelez, if they change that damn name, can be a great company. I hate saying the name. I mean, really," Peltz said in an interview last year with Bloomberg BusinessWeek.
But given his activist investing track record over the long term, any retail investor can benefit from whatever Peltz does with Mondelez, not just current shareholders. It's likely that anyone who buys now will see large gains over the next year or so.
Through his Trian Partners fund, Nelson Peltz also owns large stakes in Pepsico Inc. (NYSE: PEP), Family Dollar Stores Inc. (NYSE: FDO), Du Pont E I De Nemours & Co. (NYSE: DD), and Lazard Ltd. (NYSE: LAZ).
The fact of the matter is that investors can make money no matter what is going on with market - whether it's going up, down, or sideways. But you have to understand what's happening at any given point in time, and how to make the trends work for you instead of against you. That's just how the experts make the big money...
Peltz Helped Spur Heinz Turnaround Setting Stage for Bid
Trian's Nelson Peltz on Activist Investing, Mondelēz, and the Economy
As Mondelez Gets Peltz'd, Should You Buy?