Dan Loeb is a colorful character. He’s also very rich. Some readers may remember earlier this year when profane emails came out written by Loeb about Fairfax Financial’s Prem Watsa during a 2006 spat. For value investors like me, Watsa is a bit of a folk hero and Loeb, Steve Cohen, and Jim Chanos were all sued by Watsa for allegedly spreading false information about Fairfax in 2006.
You do have to respect Loeb’s record. His hedge fund, Third Point, has $7.9 billion under management and is closed to new investors. His most recent quarterly letter (pdf) is a bit of a classic. The one time Obama supporter tears into the president and then lovingly quotes Congressman Ryan. It’s an entertaining letter and I recommend that you read it. If you’re a close follower of the hedge fund community, you’ll laugh at the juxtaposition of Loeb quoting the bible in his letter, while you think about what was written in some of his emails (which you can view here -pdf).
Most importantly, when he’s not attacking slow money, Loeb is a great stock picker. I see no contradiction in admitting that, and also following Prem Watsa’s buys and sells. When I quote the portfolio allocations below, it is for the percentage of his long holdings. These are just a portion of his entire portfolio. Below are seven of Loeb’s top publicly traded holdings:
El Paso Corp. (EP): Loeb bought El Paso in the first quarter this year and called it one of his big winners in his most recent letter. The stock makes up about 8.5% of his long portfolio. Loeb was originally interested in the name because the company announced in February it was exploring a spin-off. Loeb saw a 40% to 60% upside from where he purchased the shares. The stock is already up nearly that amount already.
CVR Energy (CVI): CVR Energy is similar to El Paso in that it is spinning off the fertilizer business and keeping its oil refinery. This followed Loeb’s thinking. He had first bought into the stock in Q4 2010 and increased the position significantly in Q1 2011. It makes up slightly more than 7% of his portfolio. Like El Paso, this one has been a big winner for him.
LyondellBasell Industries N.V. (LYB): LYB is a chemical company with a $22 billion market cap. Loeb had bought into the name in Q4 2010 and slightly trimmed his position in Q1. It makes up slightly more than 6% of his portfolio and has run up about 8% so far in 2011.
Williams Company (WMB): Loeb originally got into Williams with the same idea as El Paso and CVR. Williams is an energy explorer, but also has a pipeline business. It had previously spun out a portion of the pipeline business into an MLP, but not completely. Loeb is looking to benefit from Williams further selling the stake in the MLP. It hasn’t happened yet, though shares are up 28% on the year. Loeb bought into the stock in Q4 2010.
Sunoco (SUN): Loeb also bought into Sunoco in Q4 2010. The stock makes up slightly more than 4% of his portfolio. Sunoco spun off its SunCoke Energy holdings last week. Do you see a theme here? Shares of Sunoco are flat on the year. Loeb significantly increased his stake in the first quarter.
NXP Semiconductors (NXPI): Loeb participated in NXP’s IPO from last August, and he must be glad he did. He wrote about the holding in his Q3 2010 investor letter (pdf). While shares are relatively flat on the year, the stock is trading more than 45% above its IPO price. The stock makes up about 4% of his portfolio.
Health Net (HNT): Loeb has owned Health Net since 2009 and it’s been a consistent winner for him. It makes up just under 4% of his portfolio. Before he bought into it, the company suffered after losing a contract with the Department of Defense, but has recovered somewhat by refocusing the business. David Einhorn joined him in the purchase, but sold out his stake in Q4 2010.