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Daniel Loeb Beats the Market with Yahoo, Japan and Cheniere Energy

April 04, 2013 | About:
Holly LaFon

Holly LaFon

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In a difficult quarter for hedge funds, and rather pleasant one for the S&P 500, Daniel Loeb bested the market with a 13.3% in his Ultra Fund in the first three months of the year, according to CNBC. By comparison, the S&P returned 10%, and the average hedge fund eked out just 3.13%. Loeb, the leader of hedge fund Third Point well known for his stormy business shakeups in his activist investment targets and event-driven investment strategy, saw several points of his strategy blossom this year.

Yahoo! Inc. (YHOO)

Loeb’s best play in the quarter was Yahoo, whose share price increased 18% year to date. At $23.44 per share, Yahoo is near its 52-week high reached Tuesday of $23.90. His stake in the company represents 5.24% of shares outstanding purchased in the year leading up to the third quarter of 2012 at average prices ranging from $13.79 and $17.81 per share.

Yahoo is Loeb’s top position, and he has forced numerous changes within the company since joining the board in May, such as the selection of former Google executive Marissa Mayer as president and chief executive officer as of July 17, 2012, and sale of its Chinese asset Alibaba Group for approximately $7.6 billion. He also helped $3.65 billion in after-tax proceeds of the sale go to shareholders of the company, which does not pay a regular dividend.

Yahoo’s fourth quarter results announced Jan. 28 showed the vintage internet company increased 2% year over year to $1.35 billion. The company generated 81% of its revenue in 2012 from display and search advertising on its own and affiliate websites, as well as listings-based services, facilitating commercial transactions, royalties and consumer and business fee-based services, according to its 10-K.

Full-year revenue increased nominally to $4.99 billion, showing the first revenue growth in four years. In 2008, its revenue reached $7.2 billion. Revenue declined 21% in 2011 due to a search agreement with Microsoft in which it would share search revenue with the company. Search revenue fell 41% that year; it increased 2% in 2012.

EBITDA increased 8% to $509 million, and GAPP net income increased 8% to $272 million, or $0.23 per diluted share compared to $0.24 per diluted share in the fourth quarter of 2011. Contributions of $2.76 billion from the sale of Alibaba lifted earnings.

Yahoo’s cash holdings increased to $6 billion at year-end, compared to $3.5 billion at year-end 2011. The company repurchased 80 million shares for $1.5 billion in the fourth quarter and repurchased 126 million shares for $2.2 billion in the full year.

Yahoo is current trading near a three-year high price and with a P/S ratio of 5.7, near a five-year high. It also has a P/E ratio of 7 and P/B ratio of 1.9. The company will announced its first quarter financial results on April 16.

Japan Macro

Loeb put an unspecified macro bet on Japan that became his second winner of the quarter. The country’s Nikkei index increased 19% year to date and had its best sequential first quarter gain in 40 years. Global investors are optimistic that the country’s new Prime Minister Shinzo Abe will instate economic stimulus as he ran on that platform to win the Nov. 14 election.

Cheniere Energy Inc. (LNG)

Cheniere Energy stock rose 37% year to date, just after Loeb purchased 4 million shares in the fourth quarter at an average price of $16 per share. The stock was one of three in the oil and gas industry that Loeb entered a new position in last quarter, a sector that is 9.7% of his portfolio.

Houston-based Cheniere Energy is primarily focused on liquefied natural gas, and its primarily aim for its business is to moetize the 2.0 Bcf/d of regasification capacity at its Sabine Pass LNG receiving terminal through various business deals and partnerships.

In addition, the company has two other prominent projects. In the first, it is developing a liquification project for up to four LNG trains near its Sabine Pass LNG terminal. In the second, it is developing an LNG terminal near Corpus Christi, Texas, with capacity for up to three modular LNG trains, with exports set to begin as early as 2017.

The company posted losses in the third quarter, primarily due to the cost of constructing the Sabine Pass LNG terminal. Also, it announced that it had filed applications with the federal energy regulatory commission to build the Corpus Christi LNG terminal and was awaiting approvals. In the fourth quarter, it announced that it was still waiting to decide when to begin construction on the Corpus Christi project and was still awaiting applicable commercial agreements, regulatory approvals and financing.

Cheniere is one of 21 companies that have filed an application with the Department of Energy to export domestically produced LNG as of March 7, according to the department’s website.

Cheniere has about $205 million in cash on its balance sheet and about $3.97 billion in long-term liabilities and debt, as of year-end. Its Wednesday share price of $25.61 is near a five-year high, and its P/S ratio of 19.1 is also near a three-year high. The stock has a P/B ratio of 11.

For more of Daniel Loeb’s trades, visit his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Daniel Loeb.


Rating: 3.9/5 (9 votes)

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