Tracking Dan Loeb's Third Point Portfolio - Q4 2018 Update

|
Includes: ADBE, APY, ARCE, AXP, BABA, BAX, BID, CI, CPB, CRM, DE, DHR, DOV, DWDP, FANG, FPAC, FTV, IQV, KDMN, LEN, LYB, MMM, MPC, MRK, MSFT, NFLX, NSRGY, PYPL, SHY, SPGI, STZ, TPNTF, TPRE, UTX, V, WP, WPX
by: John Vincent
Summary

Dan Loeb's 13F portfolio value decreased from $12.84B to $6.5B this quarter. The number of positions decreased from 31 to 22.

Third Point increased Campbell Soup and Saleforce.com, while dropping United Technologies, Netflix, Microsoft, and Alibaba Group Holdings.

The top three positions are Baxter International, Campbell Soup, and DowDuPont. Together, they are at ~47% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Dan Loeb’s 13F stock portfolio on a quarterly basis. It is based on Third Point’s regulatory 13F Form filed on 02/08/2019. 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 Q3 2018.

The 13F portfolio is very concentrated, with the top three holdings accounting for ~47% of the entire portfolio. Recent 13F reports show around 30 long positions. This quarter Loeb’s portfolio value decreased ~50%, from $12.84B to $6.51B. The number of holdings decreased from 31 to 22. The largest five individual stock positions are Baxter International (BAX), Campbell Soup (CPB), DowDuPont (DWDP), PayPal Holdings (PYPL), and Danaher Corp. (DHR).

Per their December 2018 investor update, Third Point lost 11.1% for the year, compared to a 4.4% loss for the S&P 500 Index. Annualized returns since December 1996 inception are at 14.4%, compared to 7.6% for the S&P 500 Index. In addition to partner stakes, Third Point also invests the float of Third Point Reinsurance (TPRE) and capital from London listed closed-end fund Third Point Offshore (OTC:TPNTF).

To know more about Dan Loeb's Third Point, check out his letters to shareholders at their site. His activist investing style is covered in the book The Alpha Masters: Unlocking the genius of the world's top hedge funds.

Note: Third Point has large (top-three) investment in Nestle (OTCPK:NSRGY). It is not reported in the 13F report, as it is not a 13F security. In July 2018, Third Point released a presentation calling for a three-way internal split (Beverages, Nutrition, and Grocery) of Nestle’s businesses, along with divestitures of non-core assets (primarily L’Oréal).

New Stakes

Cigna Corp (CI): CI is a new 1.68% of the portfolio position established this quarter at prices between $178 and $225, and the stock currently trades at $183. For investors attempting to follow Third Point, CI is a good option to consider for further research.

Stake Disposals

United Technologies (UTX): UTX was large (top-three) ~9% of the portfolio position as of last quarter. It was established in Q1 2018 at prices between $122 and $138. The disposal this quarter was at prices between $102 and $142. The stock currently trades at $123.

Note: United Technologies was an activist stake. Third Point pursued a three-way split, and in November, the company announced plans to do so.

Alibaba Group Holdings (BABA): BABA was a large 5% position established in Q2 2017 at prices between $107 and $144, and increased by ~47% in the following quarter at prices between $141 and $180. The stock currently trades at ~$166. There was a ~9% trimming in Q4 2017, and that was followed with a one-third reduction in Q1 2018 at prices between $174 and $205. The disposal this quarter was at prices between $132 and $164.

Note: Alibaba has seen several previous round-trips in the portfolio over the years.

Microsoft Corp. (MSFT): The 3.65% MSFT stake saw a ~300% increase in Q2 2018 at prices between $88 and $103, and that was followed with an ~80% increase last quarter at prices between $99 and $115. The stake was eliminated this quarter at prices between $94 and $116. It is now at ~$105.

Marathon Petroleum (MPC): MPC is a ~2% stake established in Q2 2018 at prices between $63 and $74, and increased by ~55% the following quarter at prices between $69 and $83. The stock is currently at $61.72. There was another ~13% increase last quarter, but the position was sold out this quarter at prices between $54 and $86.

Deere & Co. (DE): The 1.58% DE position was established in Q2 2018 at prices between $125 and $159, and increased by ~23% last quarter at prices between $135 and $154. The stake was disposed this quarter at prices between $131 and $162. The stock is currently at ~$162.

Netflix Inc. (NFLX): NFLX was a 3.64% portfolio position purchased in Q4 2017 at prices between $177 and $203. The stake was reduced by ~40% last quarter at prices between $317 and $419, and disposed this quarter at prices between $234 and $381. It is currently at ~$346. Loeb harvested short-term gains.

Lennar Corp. (LEN): The ~2% LEN stake was established in Q4 2017 at prices between $52.75 and $64, and increased by ~18% next quarter at prices between $56.50 and $72. The last two quarters had seen a combined ~17% selling at prices between $47 and $64. This quarter saw the position eliminated at prices between $38 and $47. It currently trades at $46.

Diamondback Energy (FANG), WPX Energy (WPX), and Arco Platform Ltd (ARCE): These very small (less than ~0.5% of the portfolio each) positions established last quarter was disposed this quarter.

Stake Increases

Campbell Soup: The large (top-three) ~11% CPB stake was established in Q2 2018 and increased last quarter. The bulk of the position was purchased at prices between $35 and $42. There was a ~17% stake increase this quarter at prices between $32 and $41. The stock is now near the low end of those ranges at $34.16. For investors attempting to follow, CPB is a good option to consider for further research.

Note: CPB position is an activist stake. Third Point initially pursued the replacement of the entire 12-member board, but has since settled for two board seats in a truce with management. The standstill agreement through November 2019 also stipulates Third Point not to raise ownership stake beyond ~9%. The ownership position is currently at ~7%.

Shire plc and IQVIA Holdings (IQV): These small stakes established last quarter were both increased by ~8% this quarter. Shire plc was a 4.60% stake established at prices between $166 and $181 - Takeda’s acquisition of Shire plc closed last month. The 2.91% IQV position was purchased at prices between $99 and $131, and the stock currently trades at $129.

Salesforce.com (CRM): The 2.47% CRM position was more than doubled this quarter at prices between $121 and $160. It had seen a ~20% selling last quarter at prices between $137 and $160. The stock is now at $160.

Stake Decreases

Baxter International: BAX is Loeb’s largest position at ~28% of the 13F portfolio. The stake was established in Q2 2015 and increased substantially the following quarter. There was an ~11% selling in Q1 2017 at $50.35 and another similar trimming the following quarter at $59.50. Q4 2017 saw another ~12% trimming at $64.23. December 2018 saw another ~22% selling (8M shares) in a block trade at $68.62. Loeb’s cost basis on BAX is $40.05. The stock currently trades at $71.73.

Note: Third Point controls 5.3% of the business.

DowDuPont: DWDP is currently Third Point’s third-largest individual stock position at ~8% of the portfolio. The original Dow Chemical stake was established in Q4 2013 at prices between $38 and $45. In Q2 and Q3 2014, the position was increased by just over 220% at prices between $47 and $55. Q4 2014 saw an about-turn, as ~24% of the position was disposed at prices between $43 and $53. Q2 and Q3 2016 saw another ~40% reduction at prices between $49 and $59. Since then, the position had been reduced by ~30% through minor trimming in most quarters. The last two quarters also saw a one-third selling at prices between $49 and $71. The stock currently trades at $52.

Note 1: Third Point’s Q1 2018 letter discussed the position: Materials, Specialty & Ag Co. future spins have strong parallels to LyondellBasell (LYB), 3M (MMM), and Monsanto, respectively - 2020 estimates are identical, but valuation is ~40% lower. At the time, they expected the valuation gap ($92 FVE) to narrow by Q1 2019.

Note 2: DowDuPont is an activist stake. In December 2015, Dow and DuPont announced a merger of equals and that transaction closed last September forming the new entity DowDuPont. The plan was to then split into three separate businesses. In May last year, Third Point suggested an alternate proposal: their main contention was that carve-outs of DOW and DD had performed very well in the past (for e.g., Trinseo & Olin from Dow and Axalta & Chemours from DuPont), and so, a similar strategy would be more appropriate than a three-way split. In September 2018, partly in response, DowDuPont announced certain adjustments to the original three-way split.

PayPal Holdings: PYPL is a large (top-five) ~5% of the portfolio stake established in Q2 2018 in the low $80s. The stock is currently at ~$93. The stake saw a ~55% reduction this quarter at prices between $75 and $89.

Danaher Corp.: The ~5% DHR stake was established in Q3 2015 at prices between $60.90 and $71.50, and increased by two-thirds in Q1 2016 at prices between $62 and $74. It currently trades well above those ranges at ~$110. This quarter saw a minor ~4% trimming.

Note: The prices quoted above are adjusted for the Fortive (FTV) spin-off in July 2016.

Constellation Brands (STZ): The fairly large ~4% STZ position was established in 2012. The three quarters through Q3 2016 had seen a combined ~38% increase at prices between $135 and $168. There was another ~36% increase in Q4 2016 at prices between $145 and $171. Q2 2017 saw an about-turn: a ~17% selling at prices between $161 and $194. The stock is currently at $173. H1 2018 had seen a ~20% selling at prices between $208 and $234, while last quarter saw a similar increase at prices between $200 and $222. There was a ~27% reduction this quarter at prices between $157 and $229.

American Express (AXP): AXP is a fairly large ~4% portfolio stake established last quarter at prices between $98 and $111, and the stock currently trades at ~$105. This quarter saw a 42% selling at prices between $89.50 and $113.

Note: The AXP investment was profiled in Third Point’s Q3 2018 Investor Letter. They believe sustainable double‐digit EPS growth will be achieved under new CEO Stephen Squeri as he focuses on top line growth and under‐appreciated structural opportunities in Commercial and International. That should result in a share price of ~$135 in eighteen months.

Merck & Co (MRK): The ~3% MRK position was purchased last quarter at prices between $60.50 and $71, and the stock is now above that at $76.71. This quarter saw a ~38% reduction at prices between $68 and $79.

Worldpay Inc. (WP) (previously Vantiv): WP is a ~3% portfolio stake built in H2 2017 at prices between $60 and $76. The stock currently trades well above that range at $85.83. There was a ~30% reduction in Q2 2018 at prices between $78 and $85. Last quarter saw a minor ~5% increase, while this quarter saw ~14% selling.

Visa Inc. (V): The ~3% V stake saw an ~11% trimming this quarter. The position is from Q2 2018, established at prices between $118 and $136. The stock is now at ~$141.

S&P Global (SPGI): SPGI is a ~2% position established in Q2 2016 at prices between $96 and $128. Q4 2016 saw a ~20% reduction at prices between $108 and $127, and that was followed with another ~17% selling in Q3 2017 at prices between $146 and $157. There was an about-turn in the following quarter: a ~45% increase at prices between $155 and $173. The stock is now at ~$194. The last four quarters have seen a combined ~55% reduction at prices between $160 and $215. Loeb is harvesting gains.

Dover Corp. (DOV): The very small 0.66% DOV stake had seen a 140% increase in Q1 2018 at prices between $77 and $88. The stake was sold down by ~85% this quarter at prices between $66.50 and $88. The stock currently trades at $87.

Note 1: The prices quoted above are adjusted to reflect the spin-off of Apergy (APY) that closed in May.

Note 2: Dover Corp. is an activist stake. Third Point’s Q1 2018 letter discussed the position: a) the spin-off of energy business Apergy should reduce volatility, b) cash-EPS reporting change should show strong cash generation, and c) Transition to new CEO Richard Tobin should be a positive - strong background operating industrial assets. They believed Dover is trading at a ~30% discount to peers.

iShares 1-3 Year Treasury Bond ETF (SHY): The iShares 1-3 Year Treasury Bond ETF position is a minutely small 0.05% stake that saw minor trimming this quarter.

Kept Steady

Sotheby’s (BID): BID is a ~4% of the portfolio position first purchased in Q1 2013. The bulk of the current stake was purchased in Q3 2013 at prices between $39 and $51. The stock currently trades at $40.30. Third Point’s ownership stake in BID is ~13%.

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

Adobe Systems (ADBE): ADBE is a 1.89% stake that saw a ~75% increase in Q2 2018 at prices between $212 and $258, and another ~30% increase last quarter at prices between $242 and $275. It is now at $258.

Far Point Acquisition (FPAC) & Units: The ~3% position established in Q2 2018 has since been kept steady.

Note: Far Point Acquisition is a SPAC that Third Point co-sponsored. It will have a focus on Financial Technology. Ex-NYSE (Intercontinental Exchange (ICE) subsidiary) President Tom Farley is the CEO.

Kadmon Holdings (KDMN): The minutely small 0.30% stake in KDMN was kept steady this quarter.

Note: The bulk of the stake in Kadmon Holdings is from prior to its IPO in July 2016 (P/E investment). The biopharma was founded in 2010 by Sam Waksal (of ImClone insider trading conviction and 7-year prison term infamy, circa 2003). Loeb controls ~8% of Kadmon Holdings.

The spreadsheet below highlights changes to Loeb’s 13F stock holdings in Q4 2018:

Dan Loeb - Third Point - Q4 2018 13F Report

Disclosure: I am/we are long BABA, DWDP. 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.