Yesterday, Loeb published his third quarter letter, in which he gave his analysis of the markets and several of his holdings. He said he is confident in the positions he holds amidst continued macroeconomic and political uncertainty, and has increased capital concentration in his best ideas. “Our portfolio is filled with compelling, attractively-valued, catalyst-oriented situations that are appropriately sized to our convictions,” he wrote. A portfolio of short positions is set to protect against unforeseen volatility.
In his letter, Loeb extensively analyzed three of his top six reported third-quarter positions. The three he did not address are: Yahoo, Apple and Gold.
Yahoo remained Loeb’s largest position, as it has been since September of 2011. In 2011’s third quarter, he bought 48,000,000 shares at an average price of $14, after the stock’s price declined about 24% in the first eight months of the year. In the following two quarters, Loeb added an additional 22,500,400 shares, for a total of 70,500,400 at the end of the second quarter 2012, when he did not buy any new shares. The price has increased 12.5% over the last year.
Yahoo added Loeb and two of Third Point picks to its board in mid-May. Since then, the company has reached an agreement for its Chinese subsidiary, Internet company Alibaba, to repurchase half of Yahoo’s 40% stake in it, a deal that closed in September for $7.1 billion, more than the $5 billion Loeb originally expected in his second quarter letter. The company plans to return $3 billion to shareholders, though it has not yet said whether it will be in the form of dividends or shareholders.
Loeb’s members helped the company settle a patent lawsuit against Facebook that resulted in an expanded partnership, and appoint Stanford and Google alum Marissa Mayer as CEO.
No quarterly results have been reported since Mayer took over, but in the second quarter the company’s revenue and earnings were both flat over the second quarter the previous year as online display advertising prices have declined and competition from Facebook (FB) and Google (GOOG) intensified.
Yahoo! Inc. has a market cap of $18.94 billion; its shares were traded at around $16.25 with a P/E ratio of 16.5 and P/S ratio of 3.8.
Loeb’s third-largest position and fourth-best performer in September, gold gained almost 6% over the month. Loeb first reported it as a top position in January of 2011 when it traded for about $1,400 an ounce. Gold gained 10.1% in 2011 and about 13.4% so far in 2012. The price of gold reached a nine-month high on Thursday, at $1,796.50 per ounce.
Loeb did not discuss his opinion on gold in his shareholder letters of the past two years, except to say that in the third quarter of this year that it was one of his core positions “which suffered in the second quarter” and “rebounded along with the markets.”
Apple first appeared in Loeb’s top holdings in February of 2012. In the first quarter, he bought 362,000 shares at an average price of $505. He added 63,000 shares in the second quarter at an average price of $583. The stock has gained 65% year to date, placing it in Loeb’s “top winners” for multiple months.
Apple was not one of Loeb’s top winners in September, because after a long rally its stock stagnated in September, declining 1.2%. The price declined as Apple released its iPhone 5 and sold 5 million in the opening weekend, lower than many analysts’ expected. While still a record-setting number, it was only about 1,000 units more than the number of iPhone 4S units sold in its opening weekend, suggesting that growth at the company is slowing. The iPhone 5 was also sold in two more countries than the iPhone 4S.
Apple CEO Tim Cook said that the limited sales were partially due to the company selling out of its initial supply, although it continued to ship to stores and take online orders with estimated arrival dates.
Loeb discussed what originally interested him about Apple in a letter here.
Apple Inc. has a market cap of $625.35 billion; its shares were traded at around $665.95 with a P/E ratio of 15.7 and P/S ratio of 5.8. The dividend yield of Apple Inc. stocks is 0.4%. Apple Inc. had an annual average earnings growth of 63.5% over the past five years.
See Loeb’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Daniel Loeb.