The turbulence hasn’t dried up Third Point’s thirst for some stocks, as characterized by their top pick heading into 2015, Amgen, Inc. (NASDAQ:AMGN). Third Point added 9.35 million shares to their holding, which they opened in the second quarter of 2014, giving them 10.68 million in total. Third Point highlighted Amgen, Inc. (NASDAQ:AMGN) in their third quarter investor letter, citing three areas of investor skepticism that were obscuring the biopharmaceutical company’s hidden value potential.
In a letter to investors in October, Loeb detailed some of the ways in which Amgen, Inc. (NASDAQ:AMGN) could increase shareholder value, including a streamlining of its research and development, which had seen disappointing returns on its $30 billion in investment throughout the previous decade, as well as cutting its bloated structure. Loeb even proposed the possibility of splitting the company. Amgen, Inc. (NASDAQ:AMGN) CEO Bob Bradway directly addressed two key concerns (operating margins and capital allocation) at the company’s analyst day in late October, and the stock has enjoyed a strong run throughout the second half of 2014, as detailed by Loeb:
The long-term vision and discipline presented at the Analyst Day combined with several subsequent positive clinical pipeline events helped Amgen return nearly 45% to shareholders in 2014, the best performance of all mega cap US healthcare companies and Amgen’s highest annual return since 1999.
Amgen, Inc. (NASDAQ:AMGN)’s most recent results were impressive, with revenue of $5.33 billion, and some of the benefits of those cost reductions already being seen in the greatly improved $2.16 adjusted earnings per share.
Third Point’s second biggest position was in Alibaba Group Holding Ltd (NYSE:BABA), which was also one of their most successful positions during 2014, with the stock finishing the year up 10.7% from its record-setting IPO. Third Point added an additional 2.8 million shares to their holding in the Chinese e-commerce giant during the fourth quarter, a 38% increase to an even 10 million shares.
A strong 2014 gave way to disappointing results announced in late January however, which have sent shares plummeting by 14.33% year-to-date. Despite a record-setting Singles Day in November, during which the company recorded $9 billion in sales, Alibaba Group Holding Ltd (NYSE:BABA)’s revenue growth of 40% failed to meet analysts expectations of 47% growth, while margins also slipped as mobile sales with lower margins increased (and are expected to continue increasing, as mobile penetration in China is still quite low compared to Western countries).
This will doubtlessly be one of Third Point’s tests in 2015, as they decide what to do with their second-most valuable holding. Another quarter of lower-than-anticipated growth could prove catastrophic for the stock. On the other hand, the decreased price could be the perfect time to build an even greater stake in the limitless potential of Alibaba, as recommended by Alan Haft, who sees the stock as being a wise long-term investment.
