On August 14, Third Point released its 13F filing revealing its second quarter holdings. Below is a brief analysis of some highlights. The Third Point Offshore fund posted a total 2.5 percent loss during the second quarter.
Number one on Loeb’s list of investments is his $1.1 billion stake in Yahoo! Inc. (NASDAQ:YHOO). After an extensive recalibration and struggle with executives, Loeb was instrumental in nabbing CEO Marissa Mayer from Google. As we have noted previously, Yahoo! Inc. has a tall order of improvements in order to render its business viable. Internet content aggregators are passé, while internet search and cloud computing are the new norm. The company noted in a statement that Mayer’s new outlook “may lead to a reevaluation of, or changes to, our current plans, including our restructuring plan, our share repurchase program, and our previously announced plans for returning to shareholders substantially all of the after tax cash proceeds of the initial share repurchase” in order to “enhance long term shareholder value.”
Loeb also maintains a large stake in Delphi Automotive Plc (NYSE:DLPH), which he decreased to 11.5 million shares from 13.3 million in first quarter. This company supplies large automotive manufacturers with powertrain, electronic, safety, and thermal solutions. The company’s shares were down about 20 percent during the second quarter.
Third Point upped its stake in Apple Inc. (NASDAQ:AAPL), which now totals $248 million and is its third largest holding. As we have noted, Apple’s third quarter earnings guidance is too ambitious in the absence of product releases—that is, a mini iPad and an iPhone 5. The iPhone line is the biggest driver of margins for the company: the gross margins for the iPhone—at about 50 percent—are twice that of the iPad. Downloads are becoming increasingly important, and revenue in this area is driven by Apple’s family of hardware. The legal war that Apple Inc. (NASDAQ:AAPL) is engaging with Samsung belies the sales war in smartphones, a market that grows by about 42 percent yearly. With Apple’s lack of a (dynamic) enterprise business, Loeb is betting that that the company’s brand—and maybe some indiscriminate consumer enthusiasm for an iPhone 5—will keep the Apple Inc. (NASDAQ:AAPL) cash cow mooing.
United Technologies Corporation (NYSE:UTX) is also a Third Point top-ten holding. This technology company provides a number of products to aerospace and building companies. It is expected that aging fleets will require major updates, so investment in a company tied to the aerospace industry, without the boatload of complications of owning the airlines themselves, might shape up, assuming a stabile economy.
The fund established a strong position in UnitedHealth Group Inc. (NYSE:UNH). This health insurer has maintained steady cash flows in a slow economy and is expected to see increases in its Medicare enrollment. According to S&P, operating revenue is expected to rise to $109.2 billion in 2012 from $101.8 billion in 2011.
Loeb is bearish on J.C. Penney Company, Inc. (NYSE:JCP), Bill Ackman’s pet project, owning $6.8 million in puts on the company. Third Point also established a significant new 4 million stake in Rupert Murdoch’s News Corp (NASDAQ:NWS). News Corp is up 30 percent year-to-date.
With a successful track record as an activist investor, Dan Loeb’s losses in the second quarter are in part the outcome of what Bill Ackman noted as the “time arbitrage” facet of activist investing. Short-term sentiment does not always immediately register the changes coming in a number of companies; Loeb’s investment strategy swallows this pill in order to enjoy long-term returns.
