Tracking Dan Loeb's Third Point Portfolio - Q1 2016 Update

| About: Third Point (TPRE)

Summary

Dan Loeb's 13F portfolio increased from $9.86B to $10.86B this quarter. The number of positions increased from 28 to 37.

Third Point added Alphabet Inc. and significantly increased Yum Brands during the quarter. The large Amgen stake was reduced as well.

The top-three 13F positions are Baxter International, Allergan plc, and Dow Chemical which together is at ~44% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Dan Loeb's US stock portfolio on a quarterly basis. It is based on Third Point's regulatory 13F Form filed on 05/13/2016. Please visit our Tracking Dan Loeb's Third Point Portfolio series to get an idea of his investment philosophy and our last update for the fund's moves during Q4 2015.

The 13F portfolio is very concentrated with the top-three holdings accounting for 44.43% of the entire portfolio. Recent 13F reports show around 30 long positions. This quarter, Loeb's US long portfolio increased ~10% from $9.86B to $10.86B. The number of holdings increased from 28 to 37. Largest five individual stock positions are Baxter International, Allergan plc, Dow Chemical, Yum Brands, and Alphabet Inc.

Per their Q1 2016 investor letter, Third Point returned -2.3% in the quarter. Annualized returns since December 1996 inception are at 15.8%. In addition to partner stakes, Third Point also invests the float of Third Point Reinsurance (NYSE:TPRE).

To know more about Dan Loeb's Third Point, check-out his letters to shareholders at their site. His activist investing style that is epitomized by scathing letters to CEOs is covered in "Chapter 7: The Poison Pen: Dan Loeb, Third Point" in the book "The Alpha Masters: Unlocking the genius of the world's top hedge funds".

New Stakes:

Alphabet Inc. (NASDAQ:GOOG): GOOG is a large top-five stake established this quarter at prices between $678 and $765. The stock is currently at $711.

Note: GOOG has seen a previous roundtrip in the portfolio. A fairly large 3.44% of portfolio stake was sold in Q2 2014 at prices between $510 and $579. That position was from Q3 2013 at prices between $423 and $435.

Lowes Cos (NYSE:LOW), Signet Jewelers (NYSE:SIG) & Calls, and TransDigm Group (NYSE:TDG): These are medium-sized ~2% stakes established this quarter. The 2.09% LOW stake was established at prices between $63 and $76 and the stock is now at $75. TDG is a 2.03% position purchased at prices between $187 and $230 and the stock currently trades outside that range at $249. The 1.73% stake in SIG was established at prices between $95 and $133 and stock is now at $103.

Baxalta Inc. (NYSE:BXLT) and EMC Corporation (NYSE:EMC): These two are merger-arbitrage stakes established this quarter. BXLT is a 2.23% of the portfolio stake while EMC position is at 1.72%. BXLT is getting acquired by Shire plc (NASDAQ:SHPG) in a cash-and-stock deal ($18 cash and 0.1482 shares of SHPG for each share held). At today's prices, BXLT offer is valued at ~$44 per share compared to the current quote of $42.39. Dell is acquiring EMC for $24.05 per share in cash and 0.111 per share in VMWare (NYSE:VMW) tracking stock. The deal has a value of ~$30.50 at today's prices (assumes no tracking stock discount) compared to the current quote of $27.38.

Nomad Foods (NYSE:NOMD) and VMWare Inc. : These are very small (less than ~1% of the portfolio each) stakes established this quarter. Third Point controls ~6% of NOMD.

Stake Disposals:

Morgan Stanley (NYSE:MS) and Axalta Coating Systems (NYSE:AXTA): MS was a small ~1% position established last quarter at prices between $31.29 and $35.41 and disposed of this quarter at prices between $21.69 and $31.81. AXTA was a very small 0.65% portfolio stake established last quarter at prices between $25.34 and $29.76 and eliminated this quarter at prices between $21 and $29. MS and AXTA currently trade at $25.90 and $28.03 respectively.

eBay Inc. (NASDAQ:EBAY): The ~1% EBAY position was established in Q3 2014 at prices between $19.50 and $22 and increased by ~120% the following quarter at prices between $18.68 and $22.44. Q1 2015 saw another 15% increase at prices between $20.67 and $23.72. Q3 2015 saw an about turn: ~18% decrease at prices between $24 and $29 and that was followed with a ~56% reduction last quarter at prices between $24 and $30. The elimination this quarter was at prices between $22 and $27.48. The stock currently trades at $23.78.

Note: eBay spun-off PayPal (NASDAQ:PYPL) in July 2015. The prices quoted above are adjusted for the spinoff.

Liberty Global (NASDAQ:LBTYA) (NASDAQ:LBTYK): LBTYK was a 2.07% of the US long portfolio position. It has been in the portfolio since 2011. Q2 2015 saw a ~14% reduction at prices between $48.22 and $54.41 and the remaining stake was sold this quarter at prices between $30.32 and $40.77. The stock currently trades at $36.24.

Stake Increases:

Anheuser Busch (NYSE:BUD) & Calls: BUD is a 2.01% of the US long portfolio position established in Q1 2014 at prices between $94 and $107. The stake was increased by ~30% in Q2 2014 at prices between $105 and $116. The following four quarters had seen a combined ~70% increase at prices between $106 and $127 while Q3 2015 saw a ~12% trimming at prices between $104 and $129. Last quarter, the position was reduced by another ~47% at prices between $106 and $129. The pattern reversed again this quarter: ~25% increase at prices between $112 and $127. The stock currently trades at $125.

Note: The investment in BUD is profiled in Third Point's Q1 2016 partner letter. They believe the acquisition of SABMiller (OTCPK:SBMRY) will allow BUD to perform well over the next several years.

Chubb Ltd. (NYSE:CB) previously Ace Ltd.: CB is a 2.63% of the portfolio stake established last quarter and increased by ~60% this quarter at prices between $101 and $123. The stock currently trades at $125. Ace Limited acquired Chubb and that transaction closed in January. After the transaction, Ace Limited adopted the Chubb name.

Note: The investment in CB is profiled in Third Point's Q1 2016 partner letter. They believe the combined business has double-digit earnings growth potential over the next few years.

Constellation Brands (NYSE:STZ) & Calls: The 2.46% STZ position was first purchased in 2012. Last five quarters have seen a combined ~26% reduction. This quarter saw an about turn: ~10% increase.

Note: STZ investment is profiled in Third Point's Q2 2015 partner letter. The thesis is that even after the tremendous price appreciation in the last three years, the stock still trades at only 16x 2017 EPS forecast - there is opportunity for the multiple to re-rate as consumer staples businesses with growth in volumes, sales, and earnings trade at significantly higher multiples.

Danaher Corp. (NYSE:DHR): The 3.23% DHR stake was established in Q3 2015 at prices between $82.40 and $92.96 and increased by ~65% this quarter at prices between $83.59 and $95.29. It is currently at $97.37.

Note: The investment in DHR is profiled in Third Point's Q1 2016 partner letter. They believe forthcoming spinoff will unlock significant value.

Molson Coors Brewing (NYSE:TAP): The 1.90% TAP stake was established in Q2 2015 at prices between $69.81 and $78.67 and more than doubled the following quarter at prices between $65.19 and $84.38. The stock currently trades at $98.76. Last quarter saw a ~7% trimming while this quarter saw a similar increase.

Sotheby's (NYSE:BID): BID is a 1.64% of the US long portfolio position first purchased in Q1 2013 at prices between $32 and $40. The bulk of the current position was purchased in Q3 2013 at prices between $39 and $51. The stock currently trades at $27.60. For investors attempting to follow Third Point, BID is a good option to consider for further research. This quarter saw a marginal increase. Third Point's ownership stake in BID is at 10.75%.

Note: BID is an activist stake. Third Point has three board seats and in March 2015 Tad Smith was appointed as the new CEO.

Yum! Brands (NYSE:YUM) & Calls: YUM was a large position established in Q1 2015 at prices between $70 and $82 and increased by ~200% in Q3 2015 at prices between $76 and $92. Last quarter, the position was almost eliminated at prices between $67.12 and $83.42. It was built back up to a top-five 5.28% of the portfolio stake this quarter at prices between $65 and $82. The stock is now at $80.30.

Stake Decreases:

Allergan plc (NYSE:AGN) previously Actavis plc: AGN is the second-largest individual stock position at 12.34% of the US long portfolio. It was established in Q1 2014 at prices between $168 and $227. The stake was increased by ~15% in Q3 2014 at prices between $203 and $248 and another 20% the following quarter at prices between $217 and $271. Last quarter saw another ~47% increase at prices between $253 and $322. The stock currently trades at $223. There was a ~7% trimming this quarter.

Note: Third Point profiled AGN in their Q2 2015 partner letter. Loeb likes the fact that management is aligned with shareholders: they have tied their long-term compensation to achieving $25 per share earnings target in 2017.

Amgen Inc. (NASDAQ:AMGN): A very small stake in AMGN was established in Q2 2014. It was increased by ~ 200% in Q3 2014 at prices between $115 and $144 and another ~700% in the following quarter at prices between $130 and $172. At the time, it was their largest holding at 15.34% of the portfolio. Last quarter saw a ~8% trimming while this quarter saw a further two-thirds stake reduction at prices between $141 and $162. The stock currently trades at $152 and the position is now at 4.14% of the portfolio.

Broadcom Ltd. (NASDAQ:AVGO) previously Avago Technologies: The 1.85% AVGO stake was purchased in Q3 2015 at prices between $109 and $138. It currently trades at $140. Last quarter saw a ~9% trimming while this quarter saw another ~13% reduction.

Dow Chemical (NYSE:DOW): DOW is currently Third Point's third-largest individual stock position at 11.71% of the US long portfolio. The original stake was established in Q4 2013 at prices between $38.30 and $45. In Q2 2014, the position was increased by just over 180% at prices between $46.95 and $53.15 and the following quarter saw an additional one-third increase at prices between $51 and $55. Q4 2014 saw an about-turn as ~24% of the position was disposed of at prices between $42.71 and $52.84. Last three quarters had seen minor increases while this quarter saw a marginal decrease. The stock currently trades at $50.55.

Note: DOW is an activist stake. In December 2015, Dow and DuPont (NYSE:DD) announced a merger of equals with plans to separate into three businesses after the merger.

Mohawk Industries (NYSE:MHK): The 3.52% MHK position was established in Q4 2014 at prices between $125 and $158 and was increased by ~180% the following quarter at prices between $153 and $186. Q2 2015 had seen another one-third increase at prices between $174 and $194. Last three quarters saw a combined ~17% reduction at prices between $152 and $211. The stock currently trades at $194.

Roper Technologies (NYSE:ROP) formerly Roper Industries: The 2.27% ROP stake was purchased in Q1 2014 at prices between $132 and $142. It was increased by ~23% in Q1 2015 at prices between $146 and $174. The stock currently trades at $176. Last quarter saw a ~9% trimming while this quarter saw another ~7% reduction. Third Point is starting to harvest gains.

Sealed Air Corp. (NYSE:SEE): SEE is a 2.21% of the portfolio stake established in Q2 2015 at prices between $43.80 and $52.60. The stock currently trades at $47.74. This quarter saw a ~5% trimming.

J M Smucker (NYSE:SJM): The 0.93% SJM position was purchased in Q1 2015 at prices between $100 and $116. The stake saw a ~27% increase last quarter at prices between $112 and $125. This quarter saw an about-turn: ~53% stake reduction at prices between $118 and $130. The stock is now at $131.

Time Warner Cable (NYSE:TWC): TWC is a 2.26% portfolio stake purchased in Q3 2015 at prices between $174 and $193. Last quarter saw a ~8% increase while this quarter saw a ~14% reduction. The stock is now at $215.

Note: Time Warner Cable is being acquired by Charter Communications (NASDAQ:CHTR) and the deal is expected to close in the next few days.

Kept Steady:

Baxter International (NYSE:BAX): BAX is Loeb's largest position at 20.37% of the US long portfolio. The stake was established in Q2 2015 and increased substantially the following quarter at a cost-basis of $40.44. The stock currently trades at $45.50. For investors attempting to follow Loeb, BAX is a good option to consider for further research.

Green Brick Partners (NASDAQ:GRBK): GRBK is a very small 0.57% stake. Dan Loeb controls ~25% of Green Brick Partners (previously BioFuel Energy).

The 13F portfolio also has the following minutely small (less than 0.5% of the portfolio each) stakes: Apigee Corp. (NASDAQ:APIC), Citigroup Warrants (C.WS.A), Enphase Energy (NASDAQ:ENPH), Gaming & Leisure Properties ((NASDAQ:GLPI), Intercontinental Exchange (NYSE:ICE), Kraft Heinz (HNZ), Targa Resource Corp. (NYSE:TRGP), Twenty First Century Fox (NASDAQ:FOXA), and Williams Companies (NYSE:WMB).

Note: Loeb controls ~11% of Apigee and ~14% of Enphase Energy.

The spreadsheet below highlights changes to Loeb's US stock holdings in Q1 2016:

Click to enlarge

Disclosure: I am/we are long DOW, EBAY, PYPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.