's Third Point Offshore Fund is underperforming the market this
year, having returned 15% versus the S&P 500's 16.1% return
through Aug. 31. For the month of August, the fund fell 0.7%, less
than the S&P's 2.9% decline. While other strategies may be
lackluster at the moment, the hedge fund manager's stock picking
strength is seen in his top five positions, which are all well into
positive territory this year. The other strategies remain unknown
as Loeb ceased reporting his top five overall positions (including
shorts, currency plays and others) back in May.
As of June 30, his top long stock picks having a stellar year are
Yahoo Inc. (
), American International Group (
), Liberty Global PLC (
) and Thermo Fisher Scientific Inc. (
Loeb has been highly involved Yahoo since opening the investment in
the third quarter of 2011. It seemed in the first quarter of 2013
that he would begin taking profits since the price had recovered
and he sold 11,000,400 shares. But in the second quarter, he sold
none of his remaining 62 million shares as the price continued to
Since reporting his second quarter portfolio, Loeb has sold
approximately two-thirds of his stake in Yahoo and retains 20
million shares. The investment as of July had an internal rate of
return of approximately 50% since inception.
Year to date, Yahoo shares are up almost 47% -- a level not seen
since 2008 and its heyday in the preceding years.
Loeb and two of his Third Point nominees also left the board of
directors of Yahoo in July, as part of his settlement agreement of
his proxy contest in 2012.
Loeb also listed his accomplishments with the company in his second
"Since Third Point initiated its position, over $15 billion of
value has been created, growing the company's market cap from $15
billion to $30 billion today, while over $5.2 billion of cash has
been returned to shareholders. Since Third Point made "The Case for
Alibaba" in our original investment presentation, our Fourth
Quarter 2011 Investor Letter, and on our valueyahoo.com shareholder
advocacy website, consensus Wall Street estimates for Alibaba's
value have increased from $20 billion to over $80 billion. In
addition, and consistent with our views on Japan, Yahoo Japan's
value has also more than doubled during this period."
Yahoo reported a 7% decline in revenue for the second quarter 2013,
to $1.14 billion, compared to the previous year, but it was more
profitable. GAAP net earnings increased 46% to $331 million.
Its cash balance stood at $4.8 billion, compared to $6 billion at
year-end 2012. Management repurchased 190 million shares,
fulfilling its promise that it would return $3.65 billion from its
Alibaba Group sale to shareholders. After the buyback,
approximately $1.9 billion remains under its previous
Yahoo has a P/E of 8.7, P/B of 2.2 and P/S of 7.02.
American International Group (
Loeb holds 10 million shares of AIG, after reducing 13.5 million
since the fourth quarter of 2012. He opened the position in the
second quarter of 2012, and has an approximate gain of 52% on his
average purchase price.
His second largest position, it makes up 10.1% of his stock
Originally, Loeb bought into AIG at what he believed was a
"We originally purchased AIG shares in March after identifying
the US Treasury's impending sales of its AIG holdings as an
instance of one of our favorite types of investments: 'forced' (or
non-economically-motivated) selling. We determined Treasury was
both anchored to its $29 cost basis and intent on exiting its
position as soon as possible, allowing us to purchase AIG at a
discount to intrinsic value. In addition to the forced selling
dynamic that created the opportunity, we believed AIG's substantial
capital return - manifested as buybacks in the Treasury's offering
- provided downside protection. Finally, we also liked the
technical bid for AIG shares coming out of the offering, as its
index weighting would increase with the reduction in
government-owned shares, forcing index-sensitive investors to grow
their position in the equity," he wrote in late 2012.
Later, he began to view the company more as a "post-reorg equity
newly emerged, with all of the attendant upside." Its operational
turnaround would push it to intrinsic value, with the Treasury's
sale of its 16% stake providing a catalyst.
In the second quarter, AIG reported a net income increase to $2.7
billion from $2.3 billion a year previously. Earnings per share
also increased to $1.84 from $1.12 a year previously. Each of its
property casualty, life and retirement and mortgage insurance
businesses reported improvements. Management decided on a quarterly
dividend of $0.10 per share and authorized a $1 billion repurchase
Liberty Global PLC (
As Loeb's top stock that he has been adding to, he increased the
position by 275%, or 2.2 million shares, at an average cost of $74.
He owned 3 million shares at quarter's end.
Loeb was incited to purchase Liberty Global, Europe's largest cable
operator, in the first quarter when its price declined following
the announcement of its acquisition of Virgin Media. Loeb named
"multiple catalysts and favorable geographic tailwinds" as spurring
his initial interest in the company. In April he said:
"Relative to the United States cable market, Europe offers
materially higher volume growth, lower churn, and meaningful
penetration opportunity. Before yearend, we expect catalysts in the
stock to include the closing of the VMED deal, the initiation of a
substantial buyback plan, and the unveiling of accretive wireless
and B2B initiatives. The wireless market in Liberty's key Western
European markets generates over $73 billion of annual revenue,
presenting Liberty with the opportunity to redefine the MVNO
market, leveraging a unique WiFi footprint, full back office and
system control, and attractive quad play bundles. Liberty also
appears poised to ramp up its B2B efforts, particularly in
He also foresaw the company generating $6 per share of free cash
flow in fiscal 2014, including its buyback plan. In 2012 the
company produced $3.88 per share in free cash flow, and in the
trailing 12 months ended June 30, it was at $3.43 per share.
The company also produced consolidated revenue of $3.16 billion, a
$637 million year-over-year increase. The biggest drive of the
growth was the inclusion of Virgin Media, contributing $401 million
since it began attached on June 8 through the end of the period on
A net loss of $12 million was a substantial drop from net earnings
of $702 million the previous year, as the 2012 period included a
large gain on the disposition of its interest in Austar. Excluding
that gain, it would have reported a significant improvement.
Thermo Fisher Scientific Inc. (
Loeb has been building up his newer position in Thermo Fisher
Scientific since the first quarter of 2013. He owns 2.5 million
shares in total. The average gain on the holding is 17%.
Year to date, the company's stock has gained almost 43%.
Thermo Fisher is a maker of innovative technologies under three
brand names: Thermo Scientific, Fisher Scientific and Unity Lab
Services. On April 15, it announced it would acquire Life
Technologies Corp, to become "the unrivaled leader in serving
research, specialty diagnostics and applied markets," according to
"Our customers in research and applied markets will now be able to
achieve even higher levels of innovation and productivity by
working with the combined company. We're especially excited about
the new opportunities we will have to leverage our complementary
offerings, fueled by a shared commitment to continuous innovation.
For our shareholders, we expect the transaction to generate
attractive financial returns, as well as significant and immediate
accretion to our adjusted EPS," said Marc N. Casper, president and
chief executive officer of Thermo Fisher Scientific.
The deal is set to close in early 2014.
In the second quarter, the company reported a 4% revenue increase
to a record $3.24 billion. EPS also reached a record $1.32 after
increasing 8% from $1.22 a year previously.
During the quarter, the company launched three new-generation mass
spectrometry platforms and opened a new China Innovation Center in
Shanghai which increased its research and development capabilities
in the Asia-Pacific region.
To see more
stock picks, see his portfolio here. Also check out the Undervalued
Stocks, Top Growth Companies and High Yield stocks of Daniel
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