Third Point, an activist and value hedge fund managed by billionaire Dan Loeb, filed its 13F with the SEC in mid May. The information in this filing, which discloses many of a fund’s long equity holdings as of the end of the previous quarter, can be used to develop investing strategies; we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). It’s also possible to use top managers’ picks as sources of free investment ideas, performing further research on individual names which seem interesting. Read on for our quick take on Loeb’s five largest holdings as of the end of March and compare these picks to previous filings.
Third Point’s largest position for some time has been Yahoo! Inc. (NASDAQ:YHOO), and Loeb played a key role in replacing the company’s former CEO with Marissa Mayer. While the fund trimmed its stake last quarter, it still owned 62 million shares. The stock is up 30% year to date, partly due to the increased dollar value of Yahoo’s Japan assets as the Nikkei index has risen strongly. Yahoo recently announced the purchase of Tumblr with an aim towards gaining access to younger Internet users. Billionaire Ken Griffin’s Citadel Investment Group more than doubled the size of its own Yahoo position between January and March (check out Griffin’s stock picks).
While Loeb and his team cut their stake in American International Group Inc (NYSE:AIG) they still owned 13.5 million shares at the beginning of April. Apple (NASDAQ:AAPL) regained its place as the most popular stock among hedge funds during Q1, with AIG dropping to third place (find more of hedge funds’ favorite stocks). The stock still trades at a considerable discount to the book value of its equity, with a P/B ratio of 0.7. We think that this is in part because large institutional investors such as mutual funds continue to avoid the bailed-out insurer, potentially creating a value opportunity.
Third Point was a heavy buyer of International Paper Company (NYSE:IP) between January and March, with the filing disclosing ownership of 6.6 million shares. Loeb has written to his investors that he likes the company’s increasing focus on a consolidating containerboard industry. Wall Street analysts are also bullish, with consensus forecasts for 2014 implying a forward P/E of 10. The company’s revenue was up 7% last quarter compared to the first quarter of 2012. Billionaire Jeffrey Vinik was selling International Paper last quarter but still had 1.3 million shares in his portfolio (research more stocks Vinik owned).
News Corp (NASDAQ:NWSA) rounds out our list of Loeb’s top picks. The media and entertainment company is being split this year; we’ve noticed a number of billionaire fund managers, including Stephen Mandel of Lone Pine Capital and James Dinan of York Capital Management, buying in. Value investors are treating the situation similarly to a spinout, in which the involved companies often experience high returns as management becomes better able to focus on improving operations within each separated business. We’d also note that the forward P/E of 17 is fairly moderate when compared to industry peers.
Disclosure: I own no shares of any stocks mentioned in this article.
