Daniel Loeb (Trades, Portfolio)’s weighting in financial services expanded to 14.4% from 6.3% in the fourth quarter, as he bought shares of three big banks and nixed several positions in health care.
The manager of Third Point hedge fund dropped pharma company Allergan (AGN, Financial) from his portfolio after blaming it and Amgen (AMGN, Financial) for low returns in his equity portfolio, which gained 6.1% for the quarter, versus a 12% rise in the S&P 500. Loeb opted for more balance entering January, but shifted his strategy when Donald Trump’s victory in the 2016 presidential election took him by surprise.
By mid-November, Loeb made his biggest portfolio shakeup, both increasing his shareholding of financials and replacing half of his payments, ratings, and property and casualty businesses with banks and brokers, with increased exposure to Japan. Third Point is looking more specifically at rate-sensitive financials that will benefit from the end of easy monetary policy as the broader sector rallies from expectations that the Trump administration will roll back taxes and regulations.
Loeb also likes the fundamentals of banks currently. He wrote:
“In Q4, we continued to see improving cost/income ratios with compensation/revenues falling to record lows in some cases – a sign that shareholders may be put before employees in this cycle. Across our holdings, we see 200 – 450bps of ROE expansion in the next 2 years, and again, this is before tax cuts or deregulation is considered. Our bank stocks trade <10x earnings with high”teens EPS growth ahead and at a small premium to tangible book value for returns that will expand into the mid”teens.”
JPMorgan Chase & Co. (JPM, Financial)
Loeb’s biggest new position was in JPMorgan Chase. He bought 5.25 million shares, which traded around $76 on average in the fourth quarter.
JPMorgan Chase has a market cap of $315.42 billion; its shares closed around $88.15 Monday with a P/E ratio of 14.24 and P/S ratio of 3.37. The trailing 12-month dividend yield of JPMorgan Chase stocks is 2.12%. The forward dividend yield of JPMorgan Chase stocks is 2.21%. JPMorgan Chase had an annual average earnings growth of 8% over the past 10 years.
Bank of America Corp. (BAC, Financial)
Loeb bought 17.5 million shares of Bank of America, which had an average price around $19 in the quarter.
Bank of America has a market cap of $235.23 billion; its shares were traded around $23.40 with a P/E ratio of 16.96 and P/S ratio of 3.16. The trailing 12-month dividend yield of Bank of America stocks is 1.07%. The forward dividend yield of Bank of America stocks is 1.3%. Bank of America had an annual average earnings growth of 46.90% over the past five years.
PrivateBancorp Inc. (PVTB, Financial)
Loeb bought 3 million shares of PrivateBancorp, which had an average price around $48 per share in the quarter.
PrivateBancorp Inc. has a market cap of $4.53 billion; its shares were traded around $56.91 with a P/E ratio of 22.13 and P/S ratio of 6.28. The trailing 12-month dividend yield of PrivateBancorp Inc. stocks is 0.07%. The forward dividend yield of PrivateBancorp Inc. stocks is 0.07%. PrivateBancorp Inc. had an annual average earnings growth of 27.5% over the past five years.
See Daniel Loeb (Trades, Portfolio)’s portfolio here.
