As of June 30, his top long stock picks having a stellar year are Yahoo Inc. (YHOO), American International Group (AIG), Liberty Global PLC (LBTYA) and Thermo Fisher Scientific Inc. (TMO).
Loeb has been highly involved Yahoo since opening the investment in the third quarter of 2011. It seemed in the first quarter of 2013 that he would begin taking profits since the price had recovered and he sold 11,000,400 shares. But in the second quarter, he sold none of his remaining 62 million shares as the price continued to climb.
Since reporting his second quarter portfolio, Loeb has sold approximately two-thirds of his stake in Yahoo and retains 20 million shares. The investment as of July had an internal rate of return of approximately 50% since inception.
Year to date, Yahoo shares are up almost 47% -- a level not seen since 2008 and its heyday in the preceding years.
Loeb and two of his Third Point nominees also left the board of directors of Yahoo in July, as part of his settlement agreement of his proxy contest in 2012.
Loeb also listed his accomplishments with the company in his second quarter letter:
“Since Third Point initiated its position, over $15 billion of value has been created, growing the company's market cap from $15 billion to $30 billion today, while over $5.2 billion of cash has been returned to shareholders. Since Third Point made "The Case for Alibaba" in our original investment presentation, our Fourth Quarter 2011 Investor Letter, and on our valueyahoo.com shareholder advocacy website, consensus Wall Street estimates for Alibaba's value have increased from $20 billion to over $80 billion. In addition, and consistent with our views on Japan, Yahoo Japan's value has also more than doubled during this period.”
Yahoo reported a 7% decline in revenue for the second quarter 2013, to $1.14 billion, compared to the previous year, but it was more profitable. GAAP net earnings increased 46% to $331 million.
Its cash balance stood at $4.8 billion, compared to $6 billion at year-end 2012. Management repurchased 190 million shares, fulfilling its promise that it would return $3.65 billion from its Alibaba Group sale to shareholders. After the buyback, approximately $1.9 billion remains under its previous authorization.
Yahoo has a P/E of 8.7, P/B of 2.2 and P/S of 7.02.
American International Group (AIG)
Loeb holds 10 million shares of AIG, after reducing 13.5 million since the fourth quarter of 2012. He opened the position in the second quarter of 2012, and has an approximate gain of 52% on his average purchase price.
His second largest position, it makes up 10.1% of his stock portfolio.
Originally, Loeb bought into AIG at what he believed was a discount:
“We originally purchased AIG shares in March after identifying the US Treasury’s impending sales of its AIG holdings as an instance of one of our favorite types of investments: ‘forced’ (or non-economically-motivated) selling. We determined Treasury was both anchored to its $29 cost basis and intent on exiting its position as soon as possible, allowing us to purchase AIG at a discount to intrinsic value. In addition to the forced selling dynamic that created the opportunity, we believed AIG’s substantial capital return – manifested as buybacks in the Treasury’s offering – provided downside protection. Finally, we also liked the technical bid for AIG shares coming out of the offering, as its index weighting would increase with the reduction in government-owned shares, forcing index-sensitive investors to grow their position in the equity,” he wrote in late 2012.
Later, he began to view the company more as a “post-reorg equity newly emerged, with all of the attendant upside.” Its operational turnaround would push it to intrinsic value, with the Treasury’s sale of its 16% stake providing a catalyst.
In the second quarter, AIG reported a net income increase to $2.7 billion from $2.3 billion a year previously. Earnings per share also increased to $1.84 from $1.12 a year previously. Each of its property casualty, life and retirement and mortgage insurance businesses reported improvements. Management decided on a quarterly dividend of $0.10 per share and authorized a $1 billion repurchase program.
Liberty Global PLC (LBTYA)
As Loeb’s top stock that he has been adding to, he increased the position by 275%, or 2.2 million shares, at an average cost of $74. He owned 3 million shares at quarter’s end.
Loeb was incited to purchase Liberty Global, Europe’s largest cable operator, in the first quarter when its price declined following the announcement of its acquisition of Virgin Media. Loeb named “multiple catalysts and favorable geographic tailwinds” as spurring his initial interest in the company. In April he said:
“Relative to the United States cable market, Europe offers materially higher volume growth, lower churn, and meaningful penetration opportunity. Before yearend, we expect catalysts in the stock to include the closing of the VMED deal, the initiation of a substantial buyback plan, and the unveiling of accretive wireless and B2B initiatives. The wireless market in Liberty's key Western European markets generates over $73 billion of annual revenue, presenting Liberty with the opportunity to redefine the MVNO market, leveraging a unique WiFi footprint, full back office and system control, and attractive quad play bundles. Liberty also appears poised to ramp up its B2B efforts, particularly in Germany.”
He also foresaw the company generating $6 per share of free cash flow in fiscal 2014, including its buyback plan. In 2012 the company produced $3.88 per share in free cash flow, and in the trailing 12 months ended June 30, it was at $3.43 per share.
The company also produced consolidated revenue of $3.16 billion, a $637 million year-over-year increase. The biggest drive of the growth was the inclusion of Virgin Media, contributing $401 million since it began attached on June 8 through the end of the period on June 30.
A net loss of $12 million was a substantial drop from net earnings of $702 million the previous year, as the 2012 period included a large gain on the disposition of its interest in Austar. Excluding that gain, it would have reported a significant improvement.
Thermo Fisher Scientific Inc. (TMO)
Loeb has been building up his newer position in Thermo Fisher Scientific since the first quarter of 2013. He owns 2.5 million shares in total. The average gain on the holding is 17%.
Year to date, the company’s stock has gained almost 43%.
Thermo Fisher is a maker of innovative technologies under three brand names: Thermo Scientific, Fisher Scientific and Unity Lab Services. On April 15, it announced it would acquire Life Technologies Corp, to become “the unrivaled leader in serving research, specialty diagnostics and applied markets,” according to the statement.
“Our customers in research and applied markets will now be able to achieve even higher levels of innovation and productivity by working with the combined company. We’re especially excited about the new opportunities we will have to leverage our complementary offerings, fueled by a shared commitment to continuous innovation. For our shareholders, we expect the transaction to generate attractive financial returns, as well as significant and immediate accretion to our adjusted EPS,” said Marc N. Casper, president and chief executive officer of Thermo Fisher Scientific.
The deal is set to close in early 2014.
In the second quarter, the company reported a 4% revenue increase to a record $3.24 billion. EPS also reached a record $1.32 after increasing 8% from $1.22 a year previously.
During the quarter, the company launched three new-generation mass spectrometry platforms and opened a new China Innovation Center in Shanghai which increased its research and development capabilities in the Asia-Pacific region.
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