Billionaire Dan Loeb’s Top Picks For A Fourth Quarter Recovery

Billionaire activist investor Dan Loeb of Third Point saw his hedge fund post losses of 8.9% for the September quarter in comparison to the S&P 500’s slide of 6.4% during the same period. Accomplished money managers like Loeb don’t stay down for long and that is what makes the top equity picks of Third Point even more interesting, since they have been entrusted with the fund’s recovery. These holdings include Yum! Brands, Inc. (NYSE:YUM), Dow Chemical Co (NYSE:DOW), Allergan PLC (NYSE:AGN), Amgen, Inc. (NASDAQ:AMGN), and Baxter International Inc (NYSE:BAX). Let us take a closer look at their future prospects.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

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

 – Shares held (as of September 30): 11.6 million

 – Total Value (as of September 30): $927.42 million

 – Percent of Portfolio (as of September 30): 8.75%

During the September quarter, Third Point massively increased its stake in Yum! Brands, Inc. (NYSE:YUM) by acquiring some 8.03 million shares. So far this year the stock price of the $28.94 billion operator of Quick Service Restaurants has fallen by about 4.6%. Among over 700 hedge funds that we track, Doug Silverman and Alexander Klabin‘s Senator Investment Group is another prominent stockholder of Yum! Brands, Inc. (NYSE:YUM), owning 3.5 million shares of the company valued at $315.28 million at the end of September.

#4 Dow Chemical Co (NYSE:DOW)

 – Shares held (as of September 30): 23.5 million

 – Total Value (as of September 30): $996.40 million

 – Percent of Portfolio (as of September 30): 9.40%

In the third trimester, Third Point raised its Dow Chemicals stake by 2%. Shares of the $58.34 billion provider of technology-based products and solutions to specialty chemical, agrosciences and plastic businesses, have appreciated by about 3.35% in the last 12 months, while the chemicals industry has lost about 4.56% during the same period. Loeb initiated a transformation within Dow Chemical Co (NYSE:DOW) in 2014 when he wrote about the company’s misplaced focus on downstream products, which was cutting into its profits. In response to this Dow initiated a $1 billion savings program, divested its chlorine business and is now also thinking about freeing itself of its agricultural sciences unit, which could fetch it about $15 billion. The company posted healthy third quarter financial results and seems a sound investment. Millennium Management, which is managed by Israel Englander, held 36.69 million shares of Dow Chemical Co (NYSE:DOW) at the end of September.

#3 Allergan PLC (NYSE:AGN)

 – Shares held (as of September 30): 3.67 million

 – Total Value (as of September 30): $997.27 million

 – Percent of Portfolio (as of September 30): 9.41%

Third Point raised its stake in Allergan by 11% during the July-September quarter. In late October, Pfizer Inc. (NYSE:PFE) and Allergan announced that they were engaged in discussions about a possible merger between the two companies, which would be the largest merger this year. However, the U.S. Treasury could try to block the deal, since the new company would be domiciled in Ireland, Allergan’s base, which would mean a loss of tax revenue for the U.S government. Andreas Halvorsen’s Viking Global owned about 7.20 million shares of  Allergan PLC (NYSE:AGN) at the end of September.

#2 Amgen, Inc. (NASDAQ:AMGN)

 – Shares held (as of September 30): 9.85 million

 – Total Value (as of September 30): $1.36 billion

 – Percent of Portfolio (as of September 30): 12.94%

A total of 850,000 shares of Amgen, Inc. (NASDAQ:AMGN) were acquired by Third Point during the third trimester. The $119.07 billion biotechnology company’s stock is trading nearly sideways since the start of this year. In its financial results for the September quarter, Amgen delivered EPS of $2.72, which was $0.34 ahead of estimates, and revenues of $5.72 billion, which were also $400 million ahead of expectations. During fiscal year 2016 the company plans to buy back between $2 billion and $3 billion worth of shares, and is also increasing its dividend yield from about 2% to 2.5%, beginning in the first quarter of the fiscal year. Samuel Isaly’s healthcare-focused fund Orbimed Advisors held 3.01 million shares of Amgen, Inc. (NASDAQ:AMGN) at the end of September.

#1 Baxter International Inc (NYSE:BAX)

 – Shares held (as of September 30): 53.85 million

 – Total Value (as of September 30): $1.77 billion

 – Percent of Portfolio (as of September 30): 16.69%

During the third trimester, Third Point massively increased its stake in Baxter International Inc (NYSE:BAX) by acquiring some 49 million shares. The fund’s activist campaign on Baxter reached a new milestone when the company appointed Munib Islam, a Partner at Third Point to its Board in late September. Barry Rosenstein’s JANA Partners initiated a stake in Baxter International Inc (NYSE:BAX) during the third quarter of some 12.58 million shares.

Disclosure: None