The reason for the margin is not readily clear, as Loeb ceased disclosing his fund’s top positions in his monthly reports in May. Holdings such as gold (down 26% year to date), short positions, macro positions or government bonds, which are not listed in SEC filings, may be weighing on overall returns. In May, the last time he openly reported his “top losers,” gold and two shorts appeared in the list.
The least likely culprit for underperformance in the first half is his long equity portfolio as reported in the first quarter, as most of his top stocks have had a great year.
Loeb’s largest position is in Yahoo. He has 62 million shares after trimming the stake by 11,000,400 shares in the first quarter. The stock is up almost 29% so far this year, giving Loeb a 76% average gain on his investment.
Loeb became an active investor in Yahoo about two and a half years ago. The company has been struggling to grow revenue substantially but has increased its profitability in the last year:
Yahoo this year has been busy attempting to recapture its Internet preeminence by large acquisitions, including purchasing Tumblr for $1.1 billion, a moviemaking app and a fantasy sports app. Yahoo CEO Marissa Mayer said at the company's annual meeting that user interaction on the Yahoo homepage increased 25% since its February redesign, and Flickr photo uploads increased four-found since its re-launch in May.
Despite the stock’s recent run-up, the Peter Lynch chart still calls it undervalued:
American International Group (AIG)
Loeb holds 13.5 million shares of AIG after unloading 10 million shares in the past two quarters. An investor since the second quarter of 2012, Loeb has an approximate 37% gain on the holding. Year to date, the stock is up 25%.
At AIG over the past five years, revenue has begun to increase after two years of declines, while earnings have returned to pre-recession levels:
This year, AIG repurchased approximately $25 million worth of AIG warrants from the U.S. Treasury, effectively ending all government ownership in the company which had lingered since it bailed AIG out in 2008 and 2009. The first quarter’s earnings were lower than the first quarter of the prior year because the first quarter of 2012 included proceeds of $3.3 billion from the sale and liquidation of assets. Its overall delinquency rate also continued to improve, falling to 7.9% from 11.4% the previous year.
Loeb commented on the company in his third quarter of 2012 letter:
“Longer term, we believe the company’s operational turnaround will help AIG realize its intrinsic value, as Chartis, AIG’s property and casualty arm, improves its return on equity to the targeted 10 - 12% by 2015. To achieve this ROE target, Chartis’s management, led by the talented Peter Hancock, is emphasizing international and shorter tail consumer property lines, while investing in new policy administration and back office systems. We believe this ROE target is achievable, and view the early evidence as promising: a ~300 bps year-over-year improvement in Chartis’ Q2’12 ex-cat loss ratio to 65.2% and a ~100 bps year-over-year increase in consumer share of premiums to 39% in Q2. We are further encouraged that Chartis’ turnaround has the wind at its back with the mid to high single digit pricing growth in the property and casualty insurance industry”
Delphi Automotive (DLPH)
While Loeb’s other top holdings are all in positive territory, his next best performer is his eighth-largest, Delphi Automotive (DLPH), which has a 2.5% weight. Year to date it has traded up 35%, giving Loeb a 78% average gain on the position he purchased in the first quarter of 2012.
Delphi, the global automotive parts company based in Michigan, was reorganized under Chapter 11 bankruptcy in 2009 and began publicly trading again in November 2011. Below is its revenue, earnings, price and free cash flow chart since then:
In the first quarter, Delphi’s sales declined modestly as softness continued in Europe, where results lapsed 11%. However, it was able to keep its gross margin even through its lean structure, above-market sales growth in the Asia Pacific region, particularly China and increased sales at an acquisition. The company’s business is directly tied to automotive vehicle sales and production of its customers, which increased approximately 6% from 2011 to 2012, and is expected to grow 2% in 2013.
Loeb's other top stocks as of March 31, 2013, consist of International Paper (IP), Tiffany and Co. (TIF) and Murphy Oil Co. (MUR).
See more of Daniel Loeb’s stocks in his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Daniel Loeb.
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