Billionaire Dan Loeb Reveals His Top Stock Picks; Allergan plc (AGN) Disappoints

Billionaire Dan Loeb founded New York-based Third Point LLC, an asset management firm with $17 billion assets under management, in 1995. In a recent quarterly letter to investors, Mr. Loeb called the first quarter of this year “one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund”. The New York-based asset manager was down 2.3% in the first quarter of 2016, as compared to the 1.3% gain for the S&P 500 Index over the same time span. Nonetheless, the renowned investor said they “are well-positioned to seize the opportunities borne out of this chaos and are pleased to have preserved capital through a period of vicious swings in treacherous markets”. Despite the mild loss incurred in the first quarter of 2016, Third Point has generated an annualized return of 15.8% since 1996, more than double than the 7.3% return delivered by the S&P 500 gauge over the same period. With that in mind, let’s have a look at Third Point’s top five equity positions as of the end of the first quarter.

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#5. Yum! Brands Inc. (NYSE:YUM)

– Number of shares owned by Third Point LLC as of March 31: 5.50 Million

– Value of Third Point LLC’s holding as of March 31: $450.18 Million

Third Point LLC added 5.42 million shares of Yum! Brands Inc. (NYSE:YUM) to its existing position in the company during the first quarter of 2016, ending the three-month period with 5.50 million shares. The upped stake was valued at $450.18 million on March 31 and accounted for 4.2% of Third Point’s entire portfolio. In October 2015, the owner of fast food chains KFC, Pizza Hut and Taco Bell announced plans to spin-off its China business into an independent publicly-traded company, to be called Yum China Holdings. The restaurant operator has been pressured by activist investor Keith Meister of Corvex Capital to cut loose its China business, as various food safety scandals involving the company’s Chinese suppliers damaged the performance of the entire company. However, the company’s China business has successfully recovered from the disastrous effects of those scandals. Shares of Yum! Brands rose 9% since the beginning of the year. Corvex Capital owned 21.04 million shares of Yum! Brands Inc. (NYSE:YUM) at the end of March.

#4. Alphabet Inc. (NASDAQ:GOOGL)

– Number of shares owned by Third Point LLC as of March 31: 700,000 Class A Shares

– Value of Third Point LLC’s holding as of March 31: $534.03 Million

The New York-based hedge fund acquired a new stake of 700,000 Class A shares of Alphabet Inc. (NASDAQ:GOOGL) during the first three months of 2016, which were worth $534.03 million at the end of March. The new position made up 4.9% of Third Point’s portfolio at quarter-end. One analyst at Bernstein believes Alphabet’s online video site, YouTube, is on track to become one of the world’s largest media businesses, evaluating the business in the range of $67 billion to $86 billion based on time spent on the platform. The analyst said YouTube is “among the main drivers of the migration of brand advertising dollars from TV to the Web”. The Bernstein analyst also seems puzzled by Alphabet’s choice to focus on drones, self-driving cars and other projects instead of channeling more capital into developing what could become one of the most valued media properties in the world. Alphabet’s Class A shares are down 7% since the beginning of 2016. Andreas Halvorsen’s Viking Global owns 2.05 Class A shares of Alphabet Inc. (NASDAQ:GOOGL) as of March 31.

#3. Dow Chemical Co (NYSE:DOW)

– Number of shares owned by Third Point LLC as of March 31: 25.00 Million

– Value of Third Point LLC’s holding as of March 31: $1.27 Billion

Third Point LLC owns exactly 25.00 million shares of Dow Chemical Co (NYSE:DOW) as of the end of the first quarter of 2016, 250,000 shares less than at the end of the December quarter. The reshuffled stake was valued at $1.27 billion on March 31, representing 11.7% of the fund’s portfolio. The investment community already knows that Dow Chemical and E. I. Du Pont De Nemours and Co (NYSE:DD) agreed on an all-stock merger that will definitely reshape the chemical and agricultural industries. The merged company, to be called DowDuPont, plans to achieve a target of $3 billion in cost synergies before splitting the behemoth into three independent companies, which would include a pure-play agriculture company, a pure-play material science company, and an innovation-driven specialty products company. According to the quarterly letter to investors mentioned above, Third Point believes “there is potential for operational improvement at Dow that would be incremental to the $3 billion announced synergy target”, with the New York-based fund claiming that “$5 billion of earnings improvement could be unlocked”. Larry Robbins’ Glenview Capital reported ownership of 7.24 million shares in Dow Chemical Co (NYSE:DOW) through its latest 13F.

#2. Allergan plc (NYSE:AGN)

– Number of shares owned by Third Point LLC as of March 31: 5.00 Million

– Value of Third Point LLC’s holding as of March 31: $1.34 Billion

Dan Loeb and his team trimmed Third Point’s exposure to Allergan plc (NYSE:AGN) by 400,000 shares or roughly 7% during the March quarter to 5.00 million shares, which were valued at $1.34 billion at the end of March. The 5.00 million-share stake would have been worth $1.14 billion at the time of writing, as the termination of the planned $160 billion inversion deal between Allergan and Pfizer Inc. (NYSE:PFE) put significant pressure on Allergan shares. Third Point believes the termination of the Pfizer-Allergan deal, which “dealt a further blow to many other investors” in addition to the “Valeant debacle”, partially caused “one of the most catastrophic periods of hedge fund performance” in the fund’s history. Specialty-drug giant Allergan will complete the sale of its generics business to Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) in the foreseeable future for $40 billion. The share price of Allergan’s stock is down 26% since the start of 2016. John Paulson’s Paulson & Co. owns 5.42 million shares of Allergan plc (NYSE:AGN) as of the end of the March quarter.

#1. Baxter International Inc. (NYSE:BAX)

– Number of shares owned by Third Point LLC as of March 31: 53.85 Million

– Value of Third Point LLC’s holding as of March 31: $2.21 Billion

Baxter International Inc. (NYSE:BAX) is the largest position in Third Point’s equity portfolio as of the end of the first quarter, accounting for 20.4% of the fund’s entire portfolio. The New York-based asset manager held its Baxter stake unchanged during the first three months of 2016 at 53.85 million shares, which were worth $2.21 billion on March 31. The shares of the medical devices maker have advanced nearly 16% since the beginning of 2016. Baxter International recorded total net sales of $2.38 billion for the first quarter, down from $2.40 billion reported a year ago. The company’s top-line figure was primarily impacted by foreign exchange headwinds, whose impact decreased the net sales figure by 5%. The nine brokerage firms that issued price targets on Baxter have an average 12-month target of $46.8, which implies an upside of at least 5%. Richard S. Pzena’s Pzena Investment Management held 4.08 million shares of Baxter International Inc. (NYSE:BAX) in its portfolio at the end of March.

Disclosure: None