The Big Money Says to Buy Wendy's/Arby's Group

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Wendy's/Arby's Group (NYSE: WEN  ) . Are institutions bullish or bearish when it comes to this quick-serve restaurateur?

Foolish facts

Metric

Wendy's/Arby's Group

CAPS stars (out of 5) ***
Total ratings 632
Percent bulls 78.3%
Percent bears 21.7%
Bullish pitches 105 out of 128
Highest-rated peers Kona Grill; Country Style Cooking; Dreams, Inc.

Data current as of Nov. 24.

Wendy's/Arby's has a following among Foolish value investors who believe that a healthy dose of international expansion and takeover speculation will lead the stock higher.

"Recent news suggests that they are shifting their focus to international expansion, which is huge considering the success of Yum! Brands (NYSE: YUM  ) and McDonald's (NYSE: MCD  ) ," wrote Foolish investor DrRonPaulrPrez in June. "They also voted in favor of share buy-backs at the stockholder meeting. No current position, but I am highly considering this for my next buy."

Buybacks have stalled in the months since as Wendy's/Arby's management waits for activist owner Nelson Peltz, whose Trian Fund Management owns 18.3% of the shares outstanding, to decide whether to sell the stock outright or wait for an acquirer. (Peltz's team has received overtures from potential suitors, The Wall Street Journal reports.)

If he sells now, he won't be getting a full and fair price, some Fools argue. They have a point. According to Capital IQ, Wendy's/Arby's trades for just 0.88 times revenue and about the same multiple to the company's underlying book value.

Institutional-ownership history

Top Owners

2007*

2008*

2009*

Latest*

Southeastern Asset Management

-

18,146,008

25,136,597

27,087,000

BlackRock (NYSE: BLK  )

200,080

0

30,273,430

24,180,357

The Vanguard Group

1,967,171

13,876,803

13,129,912

12,172,071

Wells Capital Management

7,014,830

7,405,328

8,458,220

10,272,104

Passport Capital

-

-

-

8,120,000

TOP 25 TOTAL

18,575,844

80,569,975

125,692,466

151,932,829

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

Institutions think that's too cheap a price. How do I know? They've been buying in bulk for years and adding to their positions in every quarter since June 2009.

BlackRock has been the biggest buyer during that period. The legendary investment manager bought more than 30 million shares from June to December. Today, the company is the second-largest Wendy's/Arby's institutional shareholder, with just in excess of 24 million shares owned.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

McDonald's 71.59% 0.09%
Panera Bread (Nasdaq: PNRA  ) 89.83% 5.19%
Sonic (Nasdaq: SONC  ) 90.64% 5.72%
Wendy's/Arby's Group 52.40% 2.31%
Yum! Brands 77.12% 0.44%

Source: Capital IQ, a division of Standard & Poor's. Data current as of Nov. 24.

Judging solely on the basis of opportunity versus insider ownership, Wendy's/Arby's looks to be the most attractive play in this table. Why? For as active as they've been, Big Money buyers barely own a majority of the outstanding Wendy's/Arby's Group shares. Plenty of buying room remains.

Insiders are also engaged. Vice Chairman Peter May owns roughly 2% of the shares outstanding and has been building his position steadily throughout the year. I think he's right to do so, which is why I've picked the stock to outperform in my CAPS portfolio.

Now it's your turn to weigh in. Do you think the institutions are wrong about Wendy's/Arby's Group? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email or replying to me on Twitter.

Interested in more info on Wendy's/Arby's Group? Add it to My Watchlist.

Panera Bread is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Yum! Brands and is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


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