In this article we’ll take a closer look at the Top 10 Stocks Billionaire Daniel Loeb Just Bought.
Daniel Loeb’s Third Point is one of the most respected and successful activist hedge funds in the world. Loeb, who is the CEO and CIO of the fund, has built a net worth of $2.9 billion through his investing acumen according to Forbes, ranking him among the top 750 richest people in the world. His investment philosophy is built around uncovering stocks with looming catalysts that will unlock concealed value, as well as investing in distressed debt and special situation equities.
Since its inception in 1996, Third Point’s flagship Offshore Fund has delivered annualized returns of 14.2% through September 30, trouncing the 8.5% annualized total return of the S&P 500. After getting battered during the Q1 market collapse, the Offshore Fund has rebounded with gains of 10.8% in Q2 and 11.7% in Q3, pushing its year-to-date returns to 3.6%. Third Point managed $21 billion in assets under management as of June 2020.
In Daniel Loeb’s third quarter investor letter, a copy of which can be accessed here, he detailed his stock-picking approach during the quarter, citing a focus on “quality businesses with robust end markets, sustainable growth, technological edge, impenetrable market positions, strong cultures, and opportunities to reinvest capital at high rates of return.”
Third Point went on a buying spree during Q3, opening positions in 21 stocks while selling out of ten former positions. The value of its 13F portfolio holdings grew to $10 billion in the process from $7.30 billion at the end of June. The portfolio’s exposure to healthcare stocks continued to decline during Q3, while Loeb greatly increased his investments in utilities and telecommunications stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free enewsletter below to receive our stories in your inbox.
Now then, let’s check out the Top 10 Stocks Billionaire Daniel Loeb Just Bought, beginning with the lone IPO among them.
10. Goodrx Holdings Inc. (NASDAQ:GDRX)
Goodrx Holdings Inc. (NASDAQ:GDRX), which launched its IPO towards the end of Q3, kicks of our list, as Third Point snagged 500,000 shares during the offering. The drug pricing app company, which anticipated an upper range of $28 on its initial offering of shares, ended up selling close to 34.6 million shares at $33. Shares quickly surged by another 50% on the open market but have slipped back by 5% in the weeks since.
Goodrx’s healthcare platform allows customers to find discounts on drugs and medical treatments, and provides the company with multiple avenues to monetize those consumers, 15 million of which use the website/app each month. Goodrx more than doubled EPS estimates during Q3, delivering $0.21 per share. The company anticipates its fiscal 2020 revenue hitting $545 million, which would represent an increase of 40% year-over-year.
9. Planet Fitness Inc (NYSE:PLNT)
Daniel Loeb expects brighter days ahead for Planet Fitness Inc (NYSE:PLNT), brighter and no doubt vaccinated, as Third Point loaded up on PLNT shares in Q3, buying 772,200 of them. Planet Fitness has become steadily more popular over the past 4½ years among the select group of hedge funds tracked by Insider Monkey, with ownership of the stock increasing by 440% during that time. Nor has the pandemic scared off hedge funds, as ownership surged by 29% in Q1 and remained flat during Q2.
Planet Fitness has had a rough go of it during the pandemic, with many of its locations remaining closed for months on end and revenue per share declining by 41.78%. Things could’ve been worse however, as membership levels have only dropped by slightly more than 7% thanks in part to strong digital marketing initiatives. There’s other potential good news for Planet Fitness as well, in that while its franchisee model will allow it to weather the pandemic, other smaller gyms won’t be as lucky, creating an opportunity for the company to expand and gobble up market share following a vaccine’s arrival.
8. Caesars Entertainment, Inc. (NASDAQ:CZR)
Caesars Entertainment, Inc. (NASDAQ:CZR) looks like another new stock pick of Daniel Loeb’s that may have been bought with a potential near-term vaccine in mind. Third Point acquired an even 1 million CZR shares during Q3, building a position valued at $56.06 million on September 30. Hedge fund ownership of Caesar’s doubled in Q4 2017 among the funds tracked by Insider Monkey, but has fallen by 29% since then.
Caesar’s has reopened all but one of its physical locations and traffic has gradually been improving. A vaccine is undoubtedly needed for a complete resurgence to pre-pandemic levels however, particularly at destination locations, which have struggled more than regional locations this year.
Caesar’s CEO Anthony Rodio, who was pushed for the role by activist investor Carl Icahn, said during Caesar’s Q3 conference call that he expects tremendous demand for gambling and entertainment to be unleashed once a vaccine is available. Interestingly, Icahn sold out of Caesar’s during Q3, unloading his entire 114 million share position.
7. Avantor, Inc. (NYSE:AVTR)
Avantor, Inc. (NYSE:AVTR), which went public in the second quarter of 2019, was added to Third Point’s 13F portfolio in Q3 to the tune of 5 million shares valued at over $112 million on September 30. The producer of chemicals and laboratory products has had a number of notable hedge funds become committed shareholders since its IPO, including Andreas Halvorsen’s Viking Global and Ken Griffin’s Citadel Investment.
Avantor is coming off a solid Q3 during which it pulled in $1.61 billion in revenue and adjusted earnings per share of $0.24, both figures topping estimates. More intriguing perhaps to Third Point is the company’s potential in the Covid vaccine space, as Avantor has been included in more than 200 vaccine trials, which could greatly boost the output of its high-margin bioprocessing unit.
6. Pinterest, Inc. (NYSE:PINS)
The first-half of our list of the top 10 stocks bought by billionaire Daniel Loeb during Q3 wraps up with Pinterest, Inc. (NYSE:PINS), one of the best performing stocks of 2020. Third Point bought 3.58 million shares of the social media platform during Q3, valued at nearly $149 million at the end of the quarter.
PINS shares have gained a remarkable 231% this year, with the bulk of those gains coming over the last three-and-a-half months. Pinterest has been one of the big winners of the lockdown, growing its monthly active users by 37% in Q3 and its revenue by 58% on a year-over-year basis. Pinterest is expecting an even better showing in Q4, predicting a 60% year-over-year surge in revenue.
- Expedia Group Inc (NASDAQ:EXPE)
Third Point bought over 1.62 million shares of Expedia Group Inc during Q3, hoping to capitalize on the travel platform’s depressed stock price as a potential vaccine nears and global travel rebounds. That move paid off earlier this month when Pfizer Inc. (NYSE:PFE)’s announcement of just such a promising vaccine sent Expedia shares soaring by 20%.
Expedia has been devastated by the pandemic, as its 2020 revenue through September plummeted by 54% year-over-year to $4.23 billion, while gross bookings tumbled by 65%. The question now might be whether or not Expedia is overvalued again after its recent surge, which has pushed its stock above pre-Covid levels despite the travel industry still being decimated and Expedia have nearly doubled its debt load to over $8.17 billion this year.
- TransDigm Group Incorporated (NYSE:TDG)
Third Point owned 435,000 shares of TransDigm Group Incorporated at the end of Q3, opening a stake in the company valued at over $206 million on September 30. Hedge fund ownership of the aerospace company rose by over 50% between the end of 2017 and the middle of 2020 among the select group of high performing funds tracked by Insider Monkey.
Vulcan Value Partners discussed Transdigm in its Q2 2020 investor letter, highlighting the company’s wide moat over potential competitors and its strong free cash flow generation:
“TransDigm Group Inc. is an aerospace manufacturing firm that provides highly engineered, niche components for use on commercial and military aircraft. The vast majority of the company’s profits come from aftermarket sales. Most of its products are small volume, low cost items that are sole sourced from TransDigm. It is economically unlikely for a new company to compete on any particular product because volumes on individual components are not large enough to justify the investment in manufacturing facilities and regulatory approval. The company produces high levels of free cash flow, has long equity duration, a strong business model, and an effective, shareholder-oriented management team who are good capital allocators.”
- Fortive Corporation (NYSE:FTV)
Third Point bought just under 3.59 million shares of Fortive Corporation during Q3, building a position valued at over $228 million at the end of September. It’s not surprising to see Daniel Loeb take an interest in Fortive, as his hedge fund has been a major shareholder of Danaher Corporation (NYSE:DHR) dating back to 2015, a year before Fortive was spun off from that company.
In its Q1 investor letter, Brown Advisory expressed its concerns that Fortive may have difficulty spinning off some of its slower growth segments amid the pandemic market volatility. It took until September, but Fortive was finally able to do just that, announcing that it would spin off industrial technology segment Vontier, with Fortive shareholders being awarded 80.1% of Vontier’s common stock on September 25.
Third Point did not own a stake in Vontier Corp (NYSE:VNT) at the end of Q3, suggesting that the fund either bought its Fortive stake after September 25, or wasn’t interested in owning Vontier and sold off the VNT shares it was awarded on the aforementioned date.
- Microsoft Corporation (NASDAQ:MSFT)
Third Point has traded in and out of Microsoft Corporation at multiple points over the past few years, selling off its most recent Microsoft position of 600,000 shares during the fourth quarter of 2019. Third Point is a Microsoft shareholder again after buying 1.1 million shares of the tech giant during Q3.
- PG&E Corp (NYSE:PCG)
Topping the list of Daniel Loeb’s newest stock buys is PG&E Corp, which Third Point opened a massive position in during Q3, acquiring 84.94 million shares valued at over $797 million on September 30. The position is now the largest Third Point has in any stock and gives the fund a 4.2% ownership stake in the utilities company, which emerged from bankruptcy protection at the start of the third quarter.
While this is a new 13F portfolio position for Third Point, the fund has had involvement with the company dating back to late 2018, when PCG’s bonds began trading at distressed levels. Loeb discussed the company in his Q2 2020 investor letter and detailed the rationale behind supporting its reorganization efforts:
“We believed PG&E’s core business remained in a strong position reflecting a classic “good business/bad capital structure” restructuring and made it the firm’s largest distressed position. By early 2020, the company reached an agreement to restructure the business and as part of that exit plan, the company needed to raise approximately $26 billion in new capital including $9 billion in new common equity. The exit financing was used to settle insurance and victims’ claims relating to the 2017 and 2018 wildfires, repay some pre‐and post‐petition creditors, and contribute to the new Wildfire Fund.”
He further remarked on some of the company’s attractive fundamentals relative to its industry, including a valuation that was less than half that of its utilities sector peers, with PCG shares trading at just 8x expected 2022 earnings. Loeb expected that discount to its peers to diminish in time as PCG found a permanent CEO, built up its shareholder base, and ironed out its operational challenges. PCG shares have gained 28.5% since the end of June.
For more timely stock picks from the world’s most successful investors, don’t miss the Top 10 Stocks Billionaire Ray Dalio Just Bought.
