Daniel Loeb is an American hedge fund director and founder of Third Point LLC, a hedge fund based in New York administrating over $8.8 billion in assets. The company is an employee-owned hedge fund adherent. It mainly offers its services to pooled investment vehicles and also caters to corporations. The company generally invests in the public equity and fixed-income markets everywhere, as well as in debt, options, and ADRs. The firm applies an event-driven investment strategy. The corporation mostly invests in companies' value and growth stocks and generally employs a disciplined approach for stock selection. Third Point was established in 1995 and has other offices in Los Angeles and Sunnyvale, Calif., Stamford, Conn., Bangalore, India, and Hong Kong.
Loeb graduated from Columbia University, and before founding Third Point he worked at Citicorp. In 2005, he achieved a 500% profit when he sold a painting by Martin Kippenberger. He has proclaimed that the American government is under a "crisis of leadership" in terms of finances. Loeb is backing Mitt Romney for president in 2012, and in March 2012 is presenting a young, urban professionals fundraising party in New York City.
I believe it is vital to acquire companies that trade products or services that are needed or desired, have no close substitute and are not regulated. I evaluated Daniel Loeb's portfolio and found that he also shares those business tenets. I will describe his holdings and the possible reasons why he picked these stocks.
Marvell Technology (MRVL)
Marvell Technology is a major designer, developer and supplier of mixed-signal and digital signal processing integrated circuits for high-speed, high-density, digital data storage and broadband digital data networking markets. The company aims at maintaining its support to customers in providing faster, better solutions to meet their needs for increased bandwidth as communication solutions evolve. The company meets this objective with state-of-the-art chip solutions that enable data transfer in data storage devices and networking applications.
There's an estimate of decent growth from the hard disk drive (HDD) market within the next few years, even though it will face near-term headwinds as many HDD manufacturing facilities were destroyed by strong floods in Thailand. Western Digital's current purchase of Hitachi's HDD business may allow Marvell to gain market share in the HDD chip industry, although HDD growth could stop. Besides, Marvell's chips are earning adoption in flash-based solid state drives (SSDs), so Marvell may not lose out if SSDs dismantle HDDs in the years ahead. Its storage business faces the risk that tablets, which use flash memory but don't require extra controller chips from companies like Marvell, may represent a threat to PCs and, in turn, HDD demand. Still, data creation and the digitization of content keeps growing at an exponential pace, which could drive HDD demand in other areas, like gaming consoles, enterprise solutions, and automotive infotainment displays.
Furthermore, there's an estimate fair share of the company's future success that will hinge upon non-HDD chip sales. The company has SoCs for use in networking equipment, helping route data on the Internet, and is also a key chip supplier to gaming consoles like Microsoft's (MSFT) Xbox 360 and Kinect. In the meantime, Marvell's handset chip business witnessed steady growth in recent years, thanks to design wins with Research In Motion (RIMM). Research In Motion has cut Marvell out of the loop in some of its current BlackBerry handset models, but Marvell's focus on mobile processors adjusted toward handsets used in 3G networks in China could more than balance this headwind.
Marvell's current net profit margin is 25.03%, higher than its 2010 margin of 12.59%. I like companies that increased profit margins in comparison to other years. It is essential to know the reason why that happened. Its current return on equity is 18.19%. That's lower than the 20%-plus standard I look for in companies I invest in, but higher than its 2010 average ROE of 8.57%.
In terms of income and revenue growth, Marvell has a three-year average revenue growth of 7.66%. Its current revenue year-over-year growth is 28.64%, higher than its 2010 revenue growth of -4.84%. The fact that revenue increased from last year shows me that the business is performing well. The current net income year-over-year growth is 155.80%, higher than its 2010 net income year-over-year growth of 140.05. I like it when net income growth is higher than past numbers.
In terms of valuation ratios, Marvell is trading at a price/book of 1.8 times, a price/sales of 2.9 times and a price/cash flow of 10.6 times, in comparison to industry averages of 3.1 times, 2.4 times and 9.2 times, respectively. It is essential to analyze the current valuation of Marvell and check how it is trading in relation to its peer group.
Marvell is in outstanding financial health, with no debt and $2.4 billion in cash and investments since November 2011.
Established in 1994 by David Filo and Jerry Yang, Yahoo is interested in the business of providing advertisements across a large number of owned and affiliate Internet properties. The business activities of the Sunnyvale, Calif.-based firm are mainly targeted at the key Internet usage areas of communication, information access, creation and sharing, and online trading. In 2010, the firm produced almost 52% of revenue from search advertisements on its own and affiliate sites, 28% of revenue from display advertisements on its own sites, and the balance from other activities. Revenue from display advertisements rose 15.4% from 2009, whereas search and other categories diminished 6.9% and 15.8%, respectively.
Earlier, the firm has made a large number of purchases, which have helped it expand a well-diversified business. With the current change in philosophy, management is now looking at the purchase of targets that could help it enhance its new business objective. In 2010, the firm acquired Associated Content and Indonesian company Koprol, both of which will help it deliver ads to an even greater audience. Yahoo also acquired Dapper, which brings display ad creation and optimization technology. In addition, there was Citizen Sports (specially targeted at sports fans), which was intended to enrich even further the social content provided by Yahoo. The most important purchase in 2009 was that of Maktoob. Still, the firm also made several smaller purchases, like the U.S.-based startup Xoopit for $20 million. Xoopit brought technology facilitating the sharing of content from inboxes with social networking sites, and the firm's specialization in mail applications, indexing and content discovery was used to improve the Yahoo mail experience.
In March 2010, the firm signed an agreement with Nokia (NOK) to improve its position in the Asia-Pacific region, where Nokia phones are the most popular. The logic behind the agreement was to build a position for Yahoo in those Asian markets where it had low penetration. Given that a Nokia phone is more or less a household item in Asia, the addition of Yahoo email and chat features there generated important publicity for the company. Yahoo also put itself in a position to profit from Nokia's advanced mapping services, an area where it lagged arch rival Google. The thing to keep in mind here is that Nokia has not been performing that well in the recent past, and the firm's market share has been slipping. With the iPhone and Android-based phones growing in important Asian markets, the success of the deal remains to be seen.
The purchase of Koprol, a small Indonesian firm with the ability to provide local information on cell phones, provided technology for expansion within Indonesia as well as other Asian countries. Currently, the firm started breaking out Asia-Pacific and EMEA regions separately, and the Asia-Pacific business (21% of revenue in the last quarter) has grown from less than 17% of revenue in the year-ago quarter. In reality, revenues from Asia rose 30.7% in 2010 in comparison to a 1.5% decline in 2009, which indicated that its focus on Asia has been fruitful.
Yahoo's current net profit margin is 21.04%, currently higher than its 2010 margin of 19.47%. Its current return on equity is 8.36%. That's lower than the 20%-plus standard I look for in companies I invest and also lower than its 2010 average ROE of 9.83%.
In terms of income and revenue growth, Yahoo has three-year average revenue growth of -11.57% and a three-year net income average growth of 35.79%. Its current revenue year-over-year growth is -21.19%, lower than its 2010 revenue growth of -2.10%. When current revenue growth is less than the past year it generally shows that business is decorating for some reason. The current net income year-over-year growth is -14.84%, lower than its 2010 net income year-over-year growth of 105.97%. In terms of valuation ratios, Yahoo is trading at a price/book of 1.5 times, a price/sales of 4.0 times and a price/cash flow of 15.0 times, in comparison to industry averages of 4.4 times, 6.5 times and 17.4 times, respectively.
In regard to valuation, Yahoo's present trailing 12 months earnings multiple is 17.0 times, in comparison to the 28.2 times average for the rival group and 16.2 times for the S&P 500. The discount to the rival group seems low, considering the uncertainty surrounding Yahoo's search business and the deteriorating position in the display business. Nevertheless, a possible acquisition is the reason for relative buoyancy in share prices and could create in further upside.
During the last five years, Yahoo shares have traded in a range of 15.5 times to 65.2 times its trailing 12 months gains. Hence, it is presently below the middle of the historical range, implying the possibility of upside from these levels. The average discount for the historical period is about 37%, whereas, based on our forward calculation for 2012, that is 80% -- also implying the possibility of price increases.
Yahoo has a strong balance sheet with more than $2.6 billion in net cash since September 2011, and free cash flows have averaged more than 12% of revenues throughout the last five years.
Dish Network (DISH)
Dish Network is based in Englewood, Col., and administrates, along with its subsidiaries, the Dish Network direct broadcast satellite subscription television service in the U.S. serving 14.337 million subscribers. Dish Network offers more than 150 national HD channels, local HD channels in 152 markets, and top-rated 1080 technology that provides the best picture available anywhere. In addition, customers have access to the international programming in the U.S., containing previous 175 channels representing more than 28 languages and one of the largest Spanish-language channel lineups. Dish Network functions via three reportable segments: Subscriber Related Revenue (99%), Equipment Sales and Other Revenue, and Equipment Sales.
Management is strongly positive about the company's new marketing drive to foster both Dish Network and Blockbuster. Regarding the deal, new as well as existing Dish Network customers will be provided with free Blockbuster Movie Pass, where one can enjoy both DVD and video games by mail and streaming of thousands of movies and TV shows for a two-year subscription period. In agreement with management, the new move has already started to pay rich dividends for Dish Network and it remains solid on better subscriber growth in the future quarters. In the fourth quarter of 2011, Dish Network purchased 22,000 net subscribers compared to an enormous loss of 156,000 subscribers in the year-ago quarter. At the end of 2011, Dish Network had about 13.967 million subscribers.
Dish Network is trading with several content developers to acquire rights to distribute online video versions of the programs. This will allow it to stream cable channels of the media corporations to Internet browsers. Furthermore, the firm is distributing place-shifting HDDVR developed by Sling Media that allows its subscribers to watch programs from their respective pay-TV subscriptions on Internet and mobile platforms. Dish Network reestablished its deals with Frontier Communications, ViaSat, and Charter Communications to provide digital TV service to the latter's customers, who are mostly settled in the rural areas, hence extending even further the firm's reach in every corner of the country.
Dish's current net profit margin is 10.79%, currently higher than its 2010 margin of 7.79%. In terms of income and revenue growth, Dish has a three-year average revenue growth of 6.54% and a three-year net income average growth of 18.85%. Its current revenue year-over-year growth is 11.14%, higher than its 2010 revenue growth of 8.37%. The fact that revenue increased from last year shows that the business is performing well. The current net income year-over-year growth is 53.94%, lower than its 2010 net income year-over-year growth of 54.94%. In terms of valuation ratios, Dish is trading at a price/book of -34.4 times, a price/sales of 1.0 times and a price/cash flow of 5.6 times, in comparison to industry averages of 3.6 times, 1.3 times and 5.2 times, respectively.
As far as valuation is concerned, Dish Network is presently trading at 11.4 times our fiscal 2012 earnings calculation. This is at a great discount to both the S&P 500 average and the industry average. Regarding our fiscal 2013 earnings evaluation, the stock is trading at 10.6 times, again a great discount to both the S&P 500 average and the industry average. Management's decision for marketing promotions to enhance subscriber base together with enlarging investment in technologically advanced equipments may sustain its upcoming growth.
Purchase of Blockbuster, DBSD, TerreStar and legal settlement with TiVo will aid the company to streamline its businesses for becoming a viable alternative to rival pay-TV subscribers. In the meantime, the stock price has increased nearly 51% in the last year, which may limit above-market gain anytime soon.
Dish has succeeded in generating fairly consistent free cash flow through all of its problems. At the end of the third quarter, the company was sitting on approximately $3.4 billion in cash vs. $8.4 billion in debt, putting net debt at a modest 1.4 times EBITDA.
Plains Exploration & Production (PXP)
An independent oil and gas company with core operations located in North America, Plains Exploration & Production is primarily engaged in the activities of purchasing, developing, exploring and producing oil and gas. The firm's main areas of operation include oil and gas properties located in the Onshore and Offshore California; the Gulf of Mexico; the Gulf Coast Region, comprising the Haynesville Shale and South and East Texas; the Mid-Continent Region in Texas and Oklahoma; and the Rocky Mountains, and an interest in an exploration prospect offshore Vietnam. Revenue Decomposition 2010: Gas Sales (23%) and Oil Sales (77%).
Plains Exploration & Production profits from its approach of asset high-grading/rotation. Divesting the Piceance and Permian basin assets has modified the company, which is now mainly focused on its high quality, low cost, high return assets, especially developing its onshore assets in California and growing at Granite Wash, the Eagle Ford Shale and the Haynesville Shale. In addition, Plains Exploration & Production is still centered on cost control, operational execution and reserve and production growth from its balanced portfolio of assets. Moving forward, the firm plans to double production and reserves by 2014, remaining balanced between oil and gas, and keeping reducing production cost per Boe.
Complementing the firm's foundation assets is its pipeline of deepwater oil prospects. The firm has several near-term catalysts that could improve its significant exploration potential. Encouraging results from Granite Wash and the Eagle Ford Shale point to appealing return potential for the firm. For the latest few quarters, the firm has enlarged its acreage in Eagle Ford by purchasing new acres in the shale, and also has divested its Gulf of Mexico assets with the objective to eliminate its offshore exposure. In our opinion, the ramp-up at Eagle Ford and Granite Wash; the termination of the Gulf of Mexico sale; and the enlarged investment onshore California should position the firm to considerably grow production over the next couple years. I expect the company's asset base to offer an appealing blend of growth opportunities.
Its current net profit margin is 10.45%, currently higher than its 2010 margin of 6.69%. Its current return on equity is 6.18% -- lower than the 20%-pluis standard I look for but higher than its 2010 average ROE of 3.14%.
In terms of income and revenue growth, Plains Exploration has a three-year average revenue growth of -6.50%. Its current revenue year-over-year growth is 27.18%, lower than its 2010 revenue growth of 30.11%. The current Net Income year-over-year growth is 98.79%, higher than its 2010 net income year-over-year growth of -24.24%. In terms of valuation ratios, it is trading at a Price/Book of 1.7x, a Price/Sales of 3.2x and a Price/Cash Flow of 5.7x in comparison to its Industry Averages of 1.9x Book, 3.0x Sales and 6.3x Cash Flow.
Taking into account valuation, Plains Exploration & Production has kept a conservative financial approach and an aggressive operational approach centered on the Haynesville Shale development and its exploration portfolio. I think the firm's asset base offers an appealing blend of growth opportunities. Still, considering the present economic downturn, I believe that supply and demand fundamentals for both crude oil and natural gas will prevent exploration and production (E&P) stocks from acquiring any important upward momentum in the near term.
Plains is in pretty good financial health, with debt/reserves, debt/EBITDA, and interest coverage ratios of $8 per boe, 3.6 times, and 8.8 times, respectively, at the end of 2010. I estimate improvement in the company's credit metrics will go forward as a result of continued sound cash flow generation and ongoing debt paydown. Monetization of all or part of its McMoRan investment should strengthen even more the firm's financial position. Plains' aggressive hedge book should help protect, as always has, the company's cash flows from oil and gas price volatility: Plains is presently 75% hedged in 2011 and 60% hedged in 2012 at strike prices near the recent NYMEX strip. Plains' low maintenance capital expenditure requirements ($600 million-$700 million per year) give the firm flexibility to pare back spending in the event of a prolonged decline in oil and gas prices.
Skyworks Solutions (SWKS)
Based in Woburn, Mass., Skyworks Solutions was established in 1962. The firm modified its name to Skyworks Solutions from Alpha Industries on June 25, 2002. Skyworks Solutions designs, manufactures, and sales a broad range of high performance analog and mixed signal semiconductors that facilitates wireless connectivity. The firm's products include power amplifiers (PAs), front-end modules (FEMS), radio frequency (RF) sub-systems, and cellular systems. Leveraging its main analog technologies, the firm also provides a diverse portfolio of linear integrated circuits (ICS) that back automotive, broadband, cellular infrastructure, industrial and medical applications.
The immense demand for smartphones continues to drive strength for Skyworks, especially at Nokia Corporation and Apple. Skyworks has partnerships with all major smartphone vendors, like Research In Motion, Motorola and Samsung. The market for smartphones is increasing four times the growth pace of the traditional cellular handset. The rising RF dollar content and increasing complexity associated with the proliferation of smartphones and a variety of other mobile Internet devices is feeding the total available market (TAM) growth, offering a unique opportunity for Skyworks to expand.
Apart from smartphones, growth will be fostered by high resolution tablets, USB modems, home networks and yet-to-be-introduced Internet connective devices. Worldwide adoption of smartphones continues to be strong and is being quickly followed by a growing tablet adoption cycle. Skyworks continues to acquire traction on the network infrastructure side of the mobile Internet connection as operators install new base stations, new routers, and back-haul equipment to enlarge coverage of data services and prepare for next generation LTE deployments. While carriers like Verizon and AT&T accelerate their LTE moves, Skyworks expects a strong opportunity for growth in the future years with its broad product portfolio.
Skyworks' current net profit margin is 15.97%, currently higher than its 2010 margin of 12.81%. Its current return on equity is 15.49%, lower than the 20%-plus standard I look for but higher than its 2010 average ROE of 11.34%. In terms of income and revenue growth, it has a three-year average revenue growth of 18.16%. Its current revenue year-over-year growth is 32.38%, lower than its 2010 revenue growth of 33.55%. The current Net Income year-over-year growth is 65.04%, higher than its 2010 net income year-over-year growth of -44.55%.
In terms of valuation ratios, Skyworks is trading at a Price/Book of 3.2x, a Price/Sales of 3.7x and a Price/Cash Flow of 14.4x in comparison to its Industry Averages of 3.1x Book, 2.4x Sales and 9.2x Cash Flow. With respect to Valuation, the stock is presently trading at a fiscal 2012 P/E multiple of 17.6x, a discount to the industry average of 17.7x and the S&P 500 multiple of 13.7x. First quarter results surpass the Zacks Consensus Estimate by a penny. I am still positive about the definite guidance provided by management for the next quarter. Earnings evaluations for fiscal 2012 remain static but have enhanced for fiscal 2013. The huge demand for smartphones continues to drive momentum for Skyworks, especially at Nokia and Apple.
Since September 2011, Skyworks held over $410 million in cash, against a small amount of convertible debt remaining on its balance sheet. I am not uneasy about Skyworks' ability to comply with its financial obligations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.