We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including billionaire Dan Loeb’s Third Point. These filings have proven useful in developing investment strategies: the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average, and our own portfolio based on these results earned an excess return of 33 percentage points in the last 11 months. Learn more about our small cap strategy. Another common way to use 13Fs is as a source of free initial ideas from top managers, with investors then doing further research on any interesting names. Read on for three trends we noticed in Loeb’s filing for the end of June or see a history of stocks he has reported owning.
Fertilizer. The fund initiated a position of about 850,000 shares in CF Industries Holdings, Inc. (NYSE:CF), an $11 billion market cap manufacturer of nitrogen- and phosphate-based fertilizers, last quarter. The stock is down 8% year to date against a rising market and is up only slightly from its levels shortly before reports of Loeb’s involvement. CF Industries Holdings, Inc. (NYSE:CF) trades at only 9 times forward earnings estimates, a figure which assumes a decrease in profits next year. A slight fall in sales in Q2 versus a year earlier contributed to an 18% decline in net income. Renaissance Technologies, founded by billionaire Jim Simons, had owned 1.1 million shares of CF Industries Holdings, Inc. (NYSE:CF) at the beginning of April (find Renaissance’s favorite stocks).
Entertainment. While it did not appear on the 13F, Third Point has disclosed a large ownership stake in Sony Corporation (ADR) (NYSE:SNE) as it pushes for the diversified Japanese company to give its entertainment unit more corporate independence, including through a partial spinout. Loeb and many other value managers often like spinouts as they leave management of the new company better able to focus on the business (learn more about Loeb’s thinking on spinouts) though of course getting this done in the very management-friendly corporate environment of Japan may be a bit ambitious for an activist investor.
Loeb and his team also bought 1.8 million shares of The Walt Disney Company (NYSE:DIS) in the second quarter of 2013. We doubt that he plans to break up that company- leveraging a content library across multiple entertainment platforms is The Walt Disney Company (NYSE:DIS)’s bread and butter- so it is more likely another expression of the available opportunities in entertainment. The Walt Disney Company (NYSE:DIS) features trailing and forward P/Es of 19 and 16, respectively. Growth was only modest in its most recent quarter compared to the same period in the previous fiscal year as poor results in filmed entertainment offset good results in other segments. Billionaire Ken Fisher’s Fisher Asset Management had owned 8.4 million shares in its filing for the first quarter of the year (research more stocks Fisher owned).
Trimming some large positions. To make room for these buys, many of what had been Third Point’s largest positions at the end of Q1 were reduced significantly. American International Group Inc (NYSE:AIG), News Corp (NASDAQ:NWSA), which has since split into “New” News Corp (NASDAQ:NWSA) and Twenty-First Century Fox Inc (NASDAQ:FOXA), and International Paper Company (NYSE:IP) are three examples of the fund’s selling activity, though all three of these names remained among its top ten picks. American International Group Inc (NYSE:AIG) is up nearly 30% year to date, outpacing market indices, yet remains valued at a discount to book with a P/B of 0.7. International Paper Company (NYSE:IP) has been experiencing significant increases in earnings, and analyst forecasts imply that it is cheap at the current price with a forward earnings multiple of 11.
We won’t be joining Loeb in his Sony Corporation (ADR) (NYSE:SNE) activism- it would be nice for Japanese business culture to become more activist friendly, but we wouldn’t want to depend on it. Disney certainly isn’t a pure value stock, but most segments show decent growth and we’d be interested to see if Third Point has any plans to improve that company’s operations. While fertilizer stocks are generally cheap as investors are sour on the industry, CF Industries Holdings, Inc. (NYSE:CF) is particularly so and while business conditions have not been good recently the valuation is low enough that earnings could actually decline modestly for a short time and still make it attractive from a value perspective.
Disclosure: I own no shares of any stocks mentioned in this article.
