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Billionaire Michael Dell's Top 5: DineEquity (DIN), PVH Corp (PVH) And More

March 23, 2013 | About:
Be sure to check out our detailed stock analysis (click here).

Michael Dell, founder of the tech giant Dell Inc., is one of the richest people in the world, with a net worth in excess of $14 billion. He manages his personal wealth through MSD Capital, which invests in public equity, private equity and real estate. Michael Dell started MSD in 1998 as a family office in an effort to diversify his wealth beyond the computer company Dell. MSD Capital runs a niche portfolio that is heavily concentrated; this includes having over 85% of his total funds invested in the top four stocks. Let's have a look at Michael Dell's top picks for last quarter. [/size]

MSD Capital's Top Picks

DineEquity Inc (NYSE: DIN) was MSD's top stock holding at the end of 2012, with over 32% of the fund invested in the company. DineEquity owns and operates two restaurant chains, Applebee's Neighborhood Grill and International House of Pancakes (IHOP). DineEquity has a robust return on equity of 37%, compared to an industry average of 20%. What's more is that its net profit margin of 15% is high compared to an industry average of 5%. DineEquity pays a 4.23% dividend yield and trades at a mere 10.7 times earnings, making the stock a value and income play (read more about why).

Asbury Automotive Group, Inc. (NYSE: ABG) is MSD's second largest holding and makes up 20% of the firm's public equity portfolio. Asbury is one of the largest automotive retailers in the United States. Asbury posted fourth quarter earnings of $0.72 per share, versus $0.55 from the same quarter last year and beating consensus of $0.65 handily. As well, earnings before interest and taxes beat consensus estimates by 5%. Asbury did suspend its dividend in 2008 in an effort to boost its cash position, but boding well for Asbury is the S&P's expected increase in U.S. light vehicle sales to 15.4 million units in 2013, up from 14.4 million in 2012.

PVH Corp. (NYSE: PVH) is MSD's fourth largest holding and makes up 17.5% of the fund's portfolio. PVH has a diversified portfolio of iconic brands including Calvin Klein, Tommy Hilfiger and Van Heusen. The stock is up over 30% during the past twelve months, mainly due to its planned acquisition of The Warnaco Group. The acquisition will unite the Calvin Klein brand under one roof. Other Warnaco brands include Speedo, Chaps, Warner's and Olga. Meanwhile, the company exited its Izod women's and Timberland wholesale sportswear businesses last year.

Irrespective of the Warnaco acquisition, expected earnings growth appears to be robust. Year 2012 showed an EPS of $5.38, and analysts estimate 2013 to be $6.39 and 2014 at $7.45. Putting a 20.5 times price to earnings multiple (the current P/E) on 2014 earnings estimates and the stock appears undervalued by over 22%. PVH is one of the top three apparel stocks for 2013 (read about all three).

Delphi Automotive PLC (NYSE: DLPH) is a vehicle components manufacturer that provides electrical, safety and thermal technology solutions to the vehicle markets. It is one of the largest vehicle component manufacturers, and its customers include some of the largest automotive original equipment manufacturers. The stock is MSD's fourth largest holding making up 15.5% of its total holdings. Global auto sales is expected to be up in 2013 thanks to expansion in the U.S. and China; as well, revenue in Asia is expected to grow faster than other regions, where its backlog has been growing rapidly. With a new cash dividend of $0.17 quarterly, the stock now has a dividend yield of 1.6%. Billionaire Dan Loeb calls Delphi one of his cheap stock picks (see all of them here).

One of Dell's big selloffs was WEX Inc (NYSE: WXS), which had previously been Dell's fourth largest holding and was 13.7% of the MSD's portfolio. WEX, formerly Wright Express Corporation, provides payment and information management solutions, including its top segment, fleet payment solutions, which provides customers with fleet vehicle payment processing services. It appears that WEX is expensive. WEX is currently trading at a price to earnings ratio of 31 times, which is nearly a 200% premium to the S&P 500 P/E ratio. On the other hand, its 5-year average premium to the S&P 500 is only 87%.

Don't Be Fooled

The big news for Michael Dell of late has been his plans to take his prized company, Dell Inc., private. However, I figured it would be worthwhile to take a break from the Dell buyout saga to see where else Michael Dell has his fortune invested. DineEquity is a big bet on a rebounding casual dining market, while Michael Dell's bets on Asbury and Delphi are broad bets on the auto market. I also like his bet on PVH, which will be quite a bet on the apparel industry, bringing together a number of top brands.

About the author:

Investment adviser and startup striver.

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