By Douglas Ehrman
Daniel Loeb, manager of Third Point LLC that has an estimated $2.3 billion in AUM, is considered a market-moving institutional investor whose trading decisions are significant. Mr. Loeb is known within the investing community for his outspoken disapproval of the conduct of other investment professionals and of his strong financial performance. For each of these reasons, his trades and opinions are carefully monitored and can, from time to time, provide some insight into developing trends in either the names he chooses, or the broader market in general.
Safeway Corp. (NYSE:SWY) – As of the end of the first quarter of 2011, Mr. Loeb initiated a position in SWY, bringing his holding size to 1.9 million shares, at an estimated average purchase price of $21.71 per share; this resulted in a portfolio weight for SWY of 1.93%. In a business of razor thin margins, SWY stands ahead of its closest competitors, SuperValu, Inc (NYSE:SVU) and The Kroger Co. (NYSE:KR), in terms of operating margin. While 2.91% for SWY seems only slightly better than 2.66% for SVU and 2.72% for KR, this is a significant difference – it is 9.3% higher than SVU’s 2.66% margin. In terms of competition, SWY is a more solid choice and looks strong against KR. SVU is a bit of an unknown, as internal shuffling has led to recent bad news; the company’s growth projections looks solid, so in terms of betting against SVU, that is a gamble. All in all, SWY stands at the front of this group.
Accuride Corp. (NYSE:ACW) – As of the end of the first quarter of 2011, Mr. Loeb initiated a position in ACW, bringing his holding size to 3.2 million shares at an estimated average purchase price of $14.67 per share; this resulted in a portfolio weight for ACW of 1.93%. ACW operates just above the microcap level (stocks with a market capitalization of $300 million or below are considered microcap), and yet has both solid liquidity – trading over 600 thousand shares per day – and significant institutional participation. Mr. Loeb is not the only major player who has filed a 13F disclosure relating to his position size in the company. These factors combine to suggest that the stock has been well researched, is solid, and is potentially in play from some catalyst event in the near-term future. Overall, the company looks attractive as at least deserving a small allocation in active portfolios.
Ebay Inc. (NASDAQ:EBAY) – As of the end of the first quarter of 2011, Mr. Loeb initiated a position in EBAY, bringing his holding size to 1.5 million shares at an estimated average purchase price of $31.12 per share; this resulted in a portfolio weight for EBAY of 2.01%. EBAY continues to be the runaway winner in e-commerce, making it an important portfolio holding for nearly any well-diversified investor. Amazon.com Inc. (NASDAQ:AMZN) is the best comparison, and EBAY is clearly the superior company based on recognized economic metrics. EBAY is trading at a trail price-to-earnings ratio of 21.34, relative to 83.81 for AMZN. This means that on this basis, AMZN in nearly four times as expensive as EBAY. AMZN continues to be plagued by an unclear picture of how sales of the kindle will be impacted by the explosion in the tablet market, and if the availability of the kindle app (and thus format), will be sufficient to drive sales for the company on the book side. EBAY’s diversified revenue stream continues to look attractive and offer a reasonable value for investors.
YPF Sociedad Anonima (NYSE:YPF) – As of the end of the first quarter of 2011, Mr. Loeb initiated a position in YPF, bringing his holding size to 2.0 million shares at an estimated average purchase price of $49.62 per share; this resulted in a portfolio weight for YPF of 1.92%. With a dividend yield in excess of 9%, one need not look further at this company during the current period in which yield is increasingly hard to find. Operating in the oil and gas space, and with a market capitalization of $14.5 billion, there is only minimal concern about the company’s stability. YPF has the added advantage of providing an investor with some international exposure (the bulk of the company’s operations are in Argentina). When considered as a pure income play, this company has a lot to offer.
Sara Lee, Corp. (SLE) – As of the end of the first quarter of 2011, Mr. Loeb initiated a position in SLE, bringing his holding size to 1.0 million shares at an estimated average purchase price of $14.20 per share; this resulted in a portfolio weight for SLE of 1.46%. SLE looks attractive at current levels based solely on the combined financial metrics when compared to its competitors, Kraft Foods, Inc. (KFT) and Tyson Foods, Inc. (NYSE:TSN). On a trailing price-to-earnings basis, TSN is a bit more attractive at a price-to-earnings ratio of 7.46 relative to 8.48 for SLE and 19.31 for KFT. When operating margin is introduced to the comparison, the field changes – SLE operates at a margin of 9.4%, KFT at 13.3%, and TSN at 4.9%. What this suggests is that SLE is a balance of the two metrics, and arguably the best choice.
NXP Semiconductors N.V. (NASDAQ:NXPI) – As of the end of the first quarter of 2011, Mr. Loeb added to his holding of NXPI, increasing his position size by 50.78% at an estimated average purchase price of $26.40 per share; this resulted in a portfolio weight for NXPI of 1.42%. NXPI makes an interesting play on Asia, where a large segment of the company’s business is located. The company has similar metric to its competition, namely STMicroelectronics NV (NYSE:STM) and Texas Instruments (NYSE:TXN). Trading with healthy liquidity and near the bottom end of the stock’s 52-week range, the company looks like an attractive play representing a good blend of tech exposure, Asian exposure, and growth potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.