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James Li
James Li
Articles (1355)  | Author's Website |

Daniel Loeb's Top 6 Trades in the 2nd Quarter

Activist investor reduces top-holding Baxter, buys 2 Chinese retail stocks

Daniel Loeb (Trades, Portfolio), founder and manager of Third Point LLC, disclosed this week that his top six trades during the second quarter included sells in Baxter International Inc. (NYSE:BAX) and Centene Corp. (NYSE:CNC), increased holdings in Walt Disney Co. (NYSE:DIS) and Charter Communications Inc. (NASDAQ:CHTR) and new positions in Alibaba Group Holding Ltd. (NYSE:BABA) and JD.com Inc. (NASDAQ:JD).

Loeb follows an event-driven, value-oriented investing style. He takes positions in stocks and pushes for changes through public letters, attempting to unlock value through catalysts.

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The investor said in his quarterly letter that Third Point's Offshore Fund gained 10.8% during the second quarter, cutting the year-to-date loss to just 3.7% as of July 31. As of the quarter-end, Loeb's $7.28 billion equity portfolio contains 35 stocks, with 13 new positions and a turnover ratio of 36%. The top three sectors in terms of weight are consumer cyclical, communications and technology, representing 25.21%, 18.45% and 17.56% of the equity portfolio.

Baxter

Loeb sold 7.58 million shares of Baxter, slashing the position by 65.46% and 9.82% off his equity portfolio. The transaction knocked Baxter out of Loeb's top five holdings, having stayed as Loeb's top holding over the past few quarters. Shares averaged $87.01 during the second quarter; based on GuruFocus estimates, he has gained approximately 88.05% on the stock since initially buying shares during second-quarter 2015.

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Loeb underscored in his letter the importance of investing in companies with strong leadership and products that are achieving high market share. Further, the investor warned that one must also find attractive entry points. Baxter fit the guru's characteristics at the time of purchase according to the letter.

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GuruFocus ranks Baxter's profitability 7 out of 10 on the back of expanding operating margins and returns that are outperforming over 70% of global competitors. Despite this, Baxter's valuation ranks 2 out of 10 on several signs of overvaluation, which include a share price close to a 10-year high and a price-book ratio that underperforms 59.60% of global competitors despite nearing a 52-week low.

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Centene

Loeb sold 6.515 million shares of Centene, chopping off 6.18% of his equity portfolio. Shares averaged $65.04 during the second quarter.

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GuruFocus ranks the St. Louis-based health care provider's profitability 8 out of 10 on the heels of a high Piotroski F-score of 7 and a three-star business predictability rank.

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Walt Disney

Loeb purchased 4.075 million shares of Walt Disney, increasing the stake 285.96% and the equity portfolio 6.24%. The transaction propelled Disney into the guru's top holding. Shares averaged $110.22 during the second quarter.

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GuruFocus ranks the Burbank, California-based entertainment giant's profitability 8 out of 10, driven by a 4.5-star business predictability rank and an operating margin that outperforms over 70% of global competitors.

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Loeb said in his letter that he purchased shares when the stock declined on fears that the shutdown of theme parks due to the coronavirus pandemic could cripple the company. Despite this, Loeb sees potential in Disney's streaming business, with its "dominant position in the global media landscape" enabling the company to "take a meaningful chunk of the growing direct-to-consumer streaming market."

Gurus with large holdings in Walt Disney include Philippe Laffont (Trades, Portfolio)'s Coatue Management and Ken Fisher (Trades, Portfolio).

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Charter

Loeb purchased 450,000 shares of Charter, increasing the holding 150% and the equity portfolio 3.15%. Shares averaged $505.65 during the second quarter.

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GuruFocus ranks the Stamford, Connecticut-based media company's profitability 7 out of 10 on several positive investing signs, which include expanding operating margins, a high Piotroski F-score of 8 and a three-year revenue growth rate that outperforms 85.33% of global competitors.

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Alibaba and JD.com

Loeb purchased 2 million shares of Alibaba and 3.25 million shares of JD.com, dedicating 5.92% and 2.69% of his equity portfolio to the two stakes. Shares of Alibaba averaged $207.72 during the quarter, while shares of JD.com averaged $50.34.

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Loeb said in his shareholder letter that he "took advantage of jitters about China's relationship with Hong Kong and the U.S.," adding that the his firm's outlook for Alibaba and the broader Chinese e-commerce market remains bright.

Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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