Third Point manager Daniel Loeb (Trades, Portfolio) disclosed on Tuesday that he established 11 new positions during the first quarter, including United Technologies Corp. (UTX, Financial), Wynn Resorts Ltd. (WYNN, Financial), PagSeguro Digital Ltd. (PAGS, Financial), and Electronic Arts Inc. (EA, Financial).
Loeb follows an event-driven, value-oriented investment style and identifies situations in which a catalyst will unlock value. The investor mentioned in his first-quarter shareholder letter that his Third Point Offshore Ltd. Master Fund had a 15.6% annualized return since inception, outperforming the Standard & Poor’s 500 benchmark by approximately 7.6%.
United Technologies
Loeb invested 7.1 million shares of United Technologies for approximately $131.23. The investor dedicated 6.71% of his portfolio to the position.
Farmington, Connecticut-based United Technologies provides high technology products and services to aerospace companies around the globe. On April 24, CEO Gregory Hayes said organic sales increased 6% during the quarter, representing the strongest first-quarter organic growth rate over the past seven years.
Loeb mentioned in his shareholder letter that although the company has “strong franchise assets” and high market share within each segment, UTX shares still lag competitors “by approximately 45% over the past five years.” The investor suggested United Technologies should be split into three standalone businesses: Otis; Climate, Controls and Security; and a third company consisting of Aerospace Systems and Pratt & Whitney.
United Technologies’ profitability ranks 8 out of 10 as the company’s operating margin and Greenblatt return on capital outperform 83% and 94% of global aerospace and defense companies. Additionally, GuruFocus ranks the company’s business predictability four stars out of five.
Pershing Square manager Bill Ackman (Trades, Portfolio) also established a position in United Technologies during the quarter.
Wynn Resorts
Loeb invested in 1.535 million shares of Wynn Resorts for an average price of $172.85. The investor dedicated 2.10% of his portfolio to the position.
Wynn Resorts, founded by former CEO Steve Wynn, announced on May 14 that Directors John J. Hagenbuch and Robert J. Miller will step down from the company’s board of directors. Miller said that the additions of Betsy Adkins, Dee Dee Myers and Wendy Webb to the board establishes “a new standard of excellence in corporate leadership” and bring on fresh perspectives.
Although the company’s profitability ranks 7 out of 10, Wynn still has two severe warning signs, including contracting operating margins and increasing long-term debt.
PagSeguro Digital
Loeb invested in 4.55 million shares of PagSeguro Digital for an average price of $32.10. The investor dedicated 1.31% of his portfolio to the position.
PagSeguro provides financial technology solutions focused primarily on micro-merchants, small companies and medium-sized companies in Brazil. The company’s profitability ranks 6 out of 10 primarily due to a strong Piotroski F-score of 7 and operating margins that outperform 87% of global competitors.
Electronic Arts
Loeb invested in 1.25 million shares of Electronic Arts for an average price of $121.20. The investor dedicated 1.14% of his portfolio to the position.
Electronic Arts owns a wide variety of franchises, including Madden, FIFA, Battlefield, Mass Effect and Need for Speed. The company’s profitability ranks 6 out of 10: even though the company’s three-year revenue growth rate is approximately 2.90% below its historical median of 9.8%, Electronic Arts has a strong Piotroski F-score of 7 and margins that outperform over 90% of global competitors.
See also
Loeb’s other top buys are Marathon Petroleum Corp. (MPC, Financial), Adobe Systems Inc. (ADBE, Financial), Black Knight Inc. (BKI, Financial), Salesforce.com Inc. (CRM, Financial), Bill Gates' (Trades, Portfolio) Microsoft Corp. (MSFT, Financial), PBF Energy Inc. (PBF, Financial) and MercadoLibre Inc. (MELI, Financial).
Disclosure: no positions.
