Daniel Loeb – Q3 2016 Update

His portfolio increased from $10.49B to $11.50B this quarter. The number of positions decreased from 40 to 38.

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Summary:

– Dan Loeb’s 13F portfolio increased from $10.49B to $11.50B this quarter. The number of positions decreased from 40 to 38.
– Third Point substantially increased Facebook, Alphabet, and Monsanto while reducing Allergan and Yum Brands.
– The top three 13F positions are Baxter International, Dow Chemical, and Allergan which together is at ~38% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Dan Loeb’s US stock portfolio on a quarterly basis. It is based on Third Point’s regulatory 13F Form filed on 11/10/2016. Please visit our Tracking Dan Loeb’s Third Point Portfolio series to get an idea of his investment philosophy and our last update for the fund’s moves during Q2 2016.

The 13F portfolio is very concentrated with the top three holdings accounting for 38.07% of the entire portfolio. Recent 13F reports show around 40 long positions. This quarter, Loeb’s US long portfolio increased 9.62% from $10.49B to $11.50B. The number of holdings decreased from 40 to 38. Largest five individual stock positions are Baxter International (NYSE:BAX), Dow Chemical (NYSE:DOW), Allergan plc (NYSE:AGN), Facebook (NASDAQ:FB), and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL).

Per their Q3 2016 investor letter, Third Point returned 5% in the quarter. Annualized returns since December 1996 inception are at 16%. In addition to partner stakes, Third Point also invests the float of Third Point Reinsurance (NYSE:TPRE).

To know more about Dan Loeb’s Third Point, check-out his letters to shareholders at their site. His activist investing style is covered in the book “The Alpha Masters: Unlocking the genius of the world’s top hedge funds.”

 

New Stakes:

Alibaba Group Holding (NYSE:BABA), Apple Inc. (NASDAQ:AAPL), ConAgra Foods (NYSE:CAG), Dell Technologies (NYSE:DVMT), Humana Inc. (NYSE:HUM), St. Jude Medical (NYSE:STJ), Visa Inc. (NYSE:V), and Williams Companies (NYSE:WMB): These are small (less than ~2.5% of the portfolio each) stakes established this quarter. BABA, AAPL, and WMB have seen previous round trips in the portfolio.
Note: Per their Q3 2016 letter, Dell and Sprint (NYSE:S) were both huge winners in their credit book.

 

Stake Disposals:

EMC Corporation: EMC was a small 1.55% merger-arbitrage stake established in Q1 2016. Dell acquired EMC for $24.05 per share in cash and 0.111 per share in VMware (NYSE:VMW) tracking stock. The transaction closed in September.

Lowe’s Cos (NYSE:LOW): The 2.26% LOW stake was established in Q1 2016 at prices between $63 and $76. It was disposed of this quarter at prices between $71 and $83. The stock is now at $69.73.

Sealed Air Corp. (NYSE:SEE): SEE was 1.97% of the portfolio stake established in Q2 2015 at prices between $43.80 and $52.60. The elimination this quarter was at prices between $45.11 and $49.41. The stock currently trades at $46.77.

Activision Blizzard (NASDAQ:ATVI), Coca-Cola Enterprises Inc. (NYSE:CCE), Harris Corp. (NYSE:HRS), Marathon Oil (NYSE:MRO), and Whiting Petroleum (NYSE:WLL): These are very small (less than 1% of the portfolio each) stakes purchased last quarter but sold out this quarter.

 

Stake Increases:

Alphabet Inc. ((GOOG): GOOG is a top-five 3.84% stake established in Q1 2016 at prices between $678 and $765. It was reduced by ~43% last quarter at prices between $668 and $767. This quarter saw a ~38% stake increase at prices between $692 and $787. The stock is currently at $754.

Note: GOOG has seen a previous round trip in the portfolio. A fairly large 3.44% of portfolio stake was sold in Q2 2014 at prices between $510 and $579. That position was from Q3 2013 at prices between $423 and $435.

Constellation Brands (NYSE:STZ) & Calls: The 3.18% STZ position was first purchased in 2012. The last three quarters have seen a combined ~38% increase at prices between $135 and $168. The stock is currently at $152.

Note: The STZ investment is profiled in Third Point’s Q2 2015 partner letter. The thesis was that even after the tremendous price appreciation over the previous three years, the stock still traded at only 16x 2017 EPS forecast – there is opportunity for the multiple to re-rate as consumer staples businesses with growth in volumes, sales, and earnings trade at significantly higher multiples. At the time, the stock traded at ~$117.

Danaher Corp. (NYSE:DHR): The 3.07% DHR stake was established in Q3 2015 at prices between $60.90 and $71.46 and increased by ~65% in Q1 2016 at prices between $62.09 and $73.79. It is currently at $80.94. This quarter also saw a ~17% further increase.

Note: The investment in DHR is profiled in Third Point’s Q1 2016 partner letter. They believed the spinoff of Fortive (NYSE:FTV) that closed in July will unlock significant value. The prices quoted above are adjusted for that transaction.

Facebook Inc.: FB is a top-five 6.08% of the portfolio stake established last quarter at prices between $109 and $121 and increased by ~45% this quarter at prices between $114 and $131. The stock is now at $119. For investors attempting to follow Loeb, FB is a good option to consider for further research.

Liberty Global (NASDAQ:LBTYA): LBTYA is a very small 0.89% of the portfolio stake established last quarter at prices between $27 and $40 and increased by ~50% this quarter at prices between $27.49 and $34.43. The stock currently trades at $30.62.

Note: Liberty Global had a previous round trip: It was a 2.07% position established in 2011 and disposed in Q1 2016.

Molson Coors Brewing (NYSE:TAP): The 1.62% TAP stake was established in Q2 2015 at prices between $69.81 and $78.67 and more than doubled the following quarter at prices between $65.19 and $84.38. Last quarter saw a ~54% reduction at prices between $92.30 and $104. The pattern reversed again this quarter: ~70% increase at prices between $93 and $110. The stock currently trades at $99.05.

Monsanto Co. (NYSE:MON), S&P Global (NYSE:SPGI), and Sherwin Williams (NYSE:SHW): These thee positions were established last quarter and increased significantly this quarter. The 3.29% MON stake was purchased at prices between $86 and $113 and it is now at $97.90. SPGI is a 2.20% position established at prices between $96 and $128 and the stock is now at $126. The 2.10% SHW stake was acquired at prices between $280 and $312 and the stock is currently below that range at $262.

Note: Bayer AG (OTCPK:BAYRY) is acquiring Monsanto for $128 per share cash.

Sotheby’s (NYSE:BID): BID is 2.20% of the US long portfolio position first purchased in Q1 2013. The bulk of the current position was purchased in Q3 2013 at prices between $39 and $51. The stock currently trades below that range at $36.34. Third Point’s ownership stake in BID is at ~12%.

Note: BID is an activist stake. Third Point has three board seats, and in March 2015, Tad Smith was appointed as the new CEO.

General Dynamics (NYSE:GD): GD was a very small 0.47% portfolio stake as of last quarter. This quarter saw a huge ~280% increase at prices between $138 and $156. The stock is now above that range at $169 and the position is at 1.82% of the portfolio.

 

Stake Decreases:

Allergan plc: AGN is the third-largest individual stock position at 7.58% of the US long portfolio. It was established in Q1 2014 at prices between $168 and $227. The stake was increased by ~15% in Q3 2014 at prices between $203 and $248 and another 20% the following quarter at prices between $217 and $271. Q4 2015 saw another ~47% increase at prices between $253 and $322. The pattern reversed this quarter: ~30% selling at prices between $230 and $260. The stock currently trades at $208.

Anheuser-Busch (NYSE:BUD) & Calls: BUD is 1.83% of the US long portfolio position established in Q1 2014 at prices between $94 and $107. The stake was increased by ~30% in Q2 2014 at prices between $105 and $116. The following four quarters had seen a combined ~70% increase at prices between $106 and $127 while Q3 2015 saw a ~12% trimming at prices between $104 and $129. In Q4 2015, the position was reduced by another ~47% at prices between $106 and $129. The pattern reversed again in Q1 2016: ~25% increase at prices between $112 and $127. The stock currently trades at $108. This quarter saw a ~15% trimming.

Charter Communications (NASDAQ:CHTR): CHTR is a 2.35% of the portfolio position established last quarter as a result of the merger of Charter Communications and Time Warner Cable that closed in May – Third Point had around 1.2M shares of Time Warner Cable. Third Point also more than doubled the stake at prices between $198 and $233. This quarter saw a ~30% stake reduction at prices between $229 and $278. The stock is now at $272.

Chubb Corp. (NYSE:CB) previously Ace Ltd.: CB is ~2% of the portfolio stake established in Q4 2015 and increased by ~60% the following quarter at prices between $101 and $123. The stock currently trades just above that range at $127. This quarter saw a ~23% reduction at prices between $124 and $131.

Note: Ace Limited acquired Chubb and it closed in January. After the transaction, Ace Limited adopted the Chubb name.

Mohawk Industries (NYSE:MHK): The 1.57% MHK position was established in Q4 2014 at prices between $125 and $158 and increased by ~180% the following quarter at prices between $153 and $186. Q2 2015 had seen another one-third increase at prices between $174 and $194. The last five quarters have seen a combined ~62% selling at prices between $150 and $215. The stock currently trades at $200. Loeb is harvesting gains.

Yum! Brands (NYSE:YUM) & Calls: YUM was a large position established in Q1 2015 at prices between $70 and $82 and increased by ~200% in Q3 2015 at prices between $76 and $92. In Q4 2015, the position was almost eliminated at prices between $67.12 and $83.42. It was built back up to a top-five 5.28% of the portfolio stake in Q1 2016 at prices between $65 and $82. Last quarter, the pattern reversed again: Around two-thirds reduction at prices between $79.33 and $85.90. That was followed with another ~80% reduction this quarter at prices between $83 and $92. The stock is now at $60.70 and the remaining stake is minutely small at 0.39%.

Ametek Inc. (NYSE:AME), Shire plc (NASDAQ:SHPG), and Union Pacific (NYSE:UNP): These are very small (less than 1.5% of the portfolio each) stakes established last quarter but reduced this quarter.

 

Kept Steady:

Baxter International: BAX is Loeb’s largest position at 21.48% of the US long portfolio. The stake was established in Q2 2015 and increased substantially the following quarter at a cost basis of $40.44. The stock currently trades at $46.82.

Dow Chemical: DOW is currently Third Point’s second largest individual stock position at 9.01% of the US long portfolio. The original stake was established in Q4 2013 at prices between $38 and $45. In Q2 2014, the position was increased by just over 180% at prices between $47 and $53 and the following quarter saw an additional one-third increase at prices between $51 and $55. Q4 2014 saw an about-turn as ~24% of the position was disposed of at prices between $43 and $53. Last quarter saw an additional ~20% reduction at prices between $49 and $54. The stock currently trades at $53.65.

Note: DOW is an activist stake. In December 2015, Dow and DuPont (NYSE:DD) announced a merger of equals with plans to separate into three businesses after the merger.

TransDigm Group (NYSE:TDG): TDG is a 2.84% position purchased in Q1 2016 at prices between $187 and $230 and increased by ~13% last quarter at prices between $219 and $267. The stock currently trades at $272.

Nomad Foods (NYSE:NOMD): NOMD is a very small 1.30% position established in Q1 2016. The stake saw a marginal increase last quarter. Third Point controls ~7% of NOMD.

Green Brick Partners (NASDAQ:GRBK): GRBK is a very small 0.58% stake. Dan Loeb controls ~25% of Green Brick Partners (previously BioFuel Energy).

Grupo Supervielle SA (Pending:SUPV): SUPV is a very small 0.58% stake kept steady this quarter.

The 13F portfolio also has the following minutely small (less than 0.5% of the portfolio each) stakes: Apigee Corp. (NASDAQ:APIC), Citigroup Warrants (C.WS.A), Enphase Energy (NASDAQ:ENPH), and Kadmon Holdings (Pending:KDMN). Kadmon Holdings is a new 13F holding this quarter. The bulk of the stake is from prior to its IPO in July (PE investment). The biopharma was founded in 2010 by Sam Waksal (ImClone insider trading conviction and 7-year prison term infamy, circa 2003).

Note 1: Loeb controls ~10.5% of Apigee, ~11.2% of Enphase Energy, and ~17.5% of Kadmon Holdings.

Note 2: Apigee was acquired by Alphabet for $17.40 per share and the transaction closed last week. Loeb profiled Apigee in his Q3 2016 letter: It was a PE portfolio business with the first investment in 2008. Overall, the investment returned 20% IRR over the holding period.

The spreadsheet below highlights changes to Loeb’s US stock holdings in Q3 2016:

 

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.This article was originally published at www.seekingalpha.com

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