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Invest in the Purina Portfolio

Former Ralston Purina CEO Bill Stiritz has left tremendous shareholder value in his wake

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Charlie Munger — brilliant lawyer and sidekick to Warren Buffett — spoke at the annual meeting for Daily Journal Corp. (NASDAQ:DJCO) earlier this month. At the talk, Munger recommended a book entitled The Outsiders: Eight Conventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike.

One of the CEOs mentioned in the book is Bill Stiritz — the current CEO of Post Holdings (NYSE:POST) and former CEO of Ralston Purina, which he took over in 1982 when he was 47. Interestingly, there are enough byproducts of Stiritz’s work to create your own investment portfolio, which we’ll call the “Purina Portfolio.”

Take a look:

Company Ticker YTD return
Jack in the Box JACK 9.4%
ITT Corp. ITT 7.8%
Flowers Foods FLO 19.4%
Apollo Global Management APO 28.9%
Energizer Holdings ENR 13.3%
Vail Resorts MTN 2.7%
Nestle NSRGY 6.4%
ConAgra Foods CAG 14.5%
Post Holdings POST 11.6%
General Mills GIS 13.8%

Burger Binge (JACK)

Ralston Purina, as part of its diversification, acquired Jack in the Box (NASDAQ:JACK) in 1968. Two years later it embarked on a major expansion that saw JACK grow to more than 1,000 restaurants by the end of the decade.

A public company since 1992, it now has 2,200 burger joints across the country, as well as 600 Qdoba Mexican Grill locations in the U.S. and Canada. With a market cap of $1.7 billion, it currently trades at its highest level since May 2007 — in large part because of its revitalization of its burger brand.

The Energizer Bunny (ENR)

As part of its diversification into consumer products, Ralston Purina acquired the Eveready Battery Co. in June 1986 from Union Carbide for $1.4 billion. Fourteen years later, it spun off Energizer Holdings (NYSE:ENR) on a 3-for-1 basis, becoming a completely independent company.  Today, Energizer is much more than batteries. It’s also Hawaiian Tropic and Banana Boat suntan lotion, Edge shaving gel, Schick and Wilkinson Sword shavers and Playtex tampons. Since going public, its stock has increased 11.2% on an annualized basis, which compares very favorably to the SPDR S&P 500 (NYSE:SPY, +1.9% annually).

Despite being on a tear the past decade, iENR did very little in both 2011 and 2012. However, with an earnings yield of 6.8% and a financial outlook that calls for adjusted diluted earnings per share of at least $6.75 in 2013, the Energizer bunny looks like it will keep going and going into 2014 and beyond.

The Hostess Effect (ITT, FLO, APO)

In 1984, Ralston Purina paid $475 million to acquire ITT Corp.’s (NYSE:ITT) Continental Baking subsidiary, which produced Wonder Bread and Hostess Twinkies. Fast forward through two bankruptcies to the present day. Flowers Foods (NYSE:FLO) — which already sells the No. 1 loaf of bread in the U.S. (Nature’s Own) — has won a $360 million bid for five of Hostess’ bread brands, including Wonder. This acquisition should increase annual revenues to $4 billion — FLO clearly is on the rise.

The other major bidder for Hostess assets is a joint effort between Apollo Global Management (NYSE:APO) and C. Dean Metropoulos & Co. The two private equity firms have offered $410 million for Hostess’ Twinkies and Dolly Madison brands, financing the entire deal with debt. Apollo’s stock gained 40% in 2012 thanks to a great year that saw it generate net economic income of $1.6 billion compared to an economic net loss of $300.5 million in 2011. If there’s a public private-equity firm to invest in, this is it.

As for ITT: Virtually everything about its Q4 results announced March 1 were solid. Its industrial pumps and valves business (its biggest division) delivered 14.5% year-over-year revenue growth in the quarter with a similar increase in operating income. For 2013, it expects revenue and adjusted earnings per share to grow 10%. Shareholders will be happy to know it also is raising its quarterly dividend 10% to 10 cents a share. Sixteen months removed from its separation into three companies, it’s a much more focused business.

Down the Mountain (MTN)

Between 1974 and 1997, Ralston Purina acquired and operated three ski resorts in Colorado: Keystone, Arapahoe Basin and Breckenridge. In 1997, it merged its ski business with Vail Associates who brought Vail and Beaver Creek to the table. The combined business would be known as Vail Resorts (NYSE:MTN), going public at $22 per share in February 1997.

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