Third Point leader Daniel Loeb (Trades, Portfolio) released his equity portfolio for the third quarter earlier this week.
Taking an event-driven, value-oriented approach to picking stocks, the guru’s New York-based firm is known for entering activist positions in underperforming companies with a catalyst that will help unlock value for shareholders.
In his shareholder letter for the third quarter, Loeb said Third Point “focused primarily on preserving capital” on the back of geopolitical conflicts, rising interest rates, rampant inflation and mounting concerns for a potential recession. He wrote:
“I am sympathetic to many of these economic and geopolitical concerns but, amidst all the gloom, we are seeing very attractive valuations, particularly assuming an economic scenario short of financial Armageddon, and are taking up exposures as we speak. As my friend and mentor, who I will dub the ‘smartest man in America,’ recently told me, he did not know when the market would bottom, but he knew for sure it would be when economic data looked god-awful.”
Keeping these considerations in mind, the 13F filing showed the guru entered nine new positions during the quarter, exited six stocks and added to or trimmed a slew of other existing investments. Notable trades for the three months ended Sept. 30 included new investments in Bath & Body Works Inc. (BBWI, Financial) and Twitter Inc. (TWTR, Financial), an increased bet on Colgate-Palmolive Co. (CL, Financial), a reduction in the EQT Corp. (EQT, Financial) stake and the divestment of Cenovus Energy Inc. (CVE, Financial).
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Bath & Body Works
Loeb invested in 8.14 million shares of Bath & Body Works (BBWI, Financial), allocating 4.81% of the equity portfolio to the stake. The stock traded for an average price of $35.28 per share during the quarter.
It is now his sixth-largest holding.
The Columbus, Ohio-based specialty retail company, which is known for its variety of soaps, lotions, fragrances and candles, has a $7.41 billion market cap; its shares were trading around $32.50 on Wednesday with a price-earnings ratio of 8.60 and a price-sales ratio of 1.06.
The GF Value Line suggests the stock, while undervalued, is a possible value trap currently based on its historical ratios, past financial performance and analysts’ future earnings projections. As such, potential investors should do thorough research before making a decision.
The GF Score of 75 out of 100 indicates the company is likely to have average performance going forward. It received high points for profitability, GF Value and momentum, middling marks for financial strength and a low grade for growth.
Of the gurus invested in Bath & Body Works, Steve Mandel (Trades, Portfolio) has the largest stake with 9.03% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies also have notable holdings.
Taking advantage of Elon Musk’s $44 billion bid to buy Twitter Inc. (TWTR, Financial), the guru picked up 5.5 million shares, dedicating 4.38% of the equity portfolio to the stake. During the quarter, shares traded for an average price of $40.71 each.
It became his seventh-largest holding before the deal officially closed in October.
According to the terms of the agreement, shareholders of the now-private social media company, which is headquartered in San Francisco, received $54.20 per share.
Before being delisted on Nov. 8, the company had a market cap of $41.09 billion; its shares closed at $53.70 on its final day of trading, which was Oct. 27, with a price-book ratio of 6.98 and a price-sales ratio of 8.22.
The stock had gained approximately 25.88% for the year to date.
With a 1.64% stake, Carl Icahn (Trades, Portfolio) was Twitter’s largest guru shareholder before the company became private. Other gurus invested in the stock included David Einhorn (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Michael Price (Trades, Portfolio), Simons’ firm, Hotchkis & Wiley, PRIMECAP Management (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Louis Moore Bacon (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).
Colgate-Palmolive
The investor increased the Colgate-Palmolive (CL, Financial) stake by 481.86%, buying 9.56 million shares. The transaction had an impact of 12.20% on the equity portfolio. The stock traded for an average per-share price of $78.41 during the quarter.
Holding a total of 11.5 million shares, it is now the guru’s largest position with a weight of 14.73%. GuruFocus estimates Loeb has lost 2.68% on the investment so far.
The New York-based consumer packaged goods company, which makes products like Colgate toothpaste, Irish Spring soap and Ajax laundry detergent, has a $63.79 billion market cap; its shares were trading around $76.47 on Wednesday with a price-earnings ratio of 33.21, a price-book ratio of 101.84 and a price-sales ratio of 3.62.
According to the GF Value Line, the stock is fairly valued currently.
Further, the GF Score of 80 indicates the company is likely to have average performance. It raked in high points for profitability and GF Value as well as middling marks for growth, financial strength and momentum.
In his commentary for the quarter, Loeb noted Colgate-Palmolive “fits several important criteria in the current investment environment.” He pointed to its defensive business, which has “significant pricing power in inflationary conditions,” the “hidden value” in its Hill’s Pet Nutrition division and the “favorable industry backdrop in consumer health.”
“Finally, the current valuation is attractive both because earnings growth is poised to inflect higher, and because shareholders are paying very little for the optionality around Hill’s or Colgate’s ability to participate in further consolidation in the consumer health sector,” he wrote.
Loeb is now Colgate-Palmolive’s largest guru shareholder with a 1.38% stake. First Eagle Investment (Trades, Portfolio), Simons’ firm, Dalio’s firm and Yacktman Asset Management (Trades, Portfolio) also have sizable holdings in the stock.
EQT
Impacting the equity portfolio by -3.48%, Loeb’s EQT (EQT, Financial) holding was curbed 56.81%, shedding 4.27 million shares. The stock traded for an average price of $43.37 per share during the quarter.
Loeb now holds a total of 3.25 million shares, which occupy 2.40% of the equity portfolio. GuruFocus data shows he has gained an estimated 41.44% on the investment over its lifetime. It was previously his sixth-largest position.
The oil and gas producer headquartered in Pittsburgh has a market cap of $15.23 billion; its shares were trading around $41.48 on Wednesday with a price-earnings ratio of 9.18, a price-book ratio of 1.59 and a price-sales ratio of 1.33.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
The GF Score of 68 suggests the company has poor future performance potential. While it got a high grade for profitability, it received middling marks for growth and financial strength and low ranks for GF Value and momentum.
Of the gurus invested in EQT, Mandel has the largest stake with 1.61% of its outstanding shares. Simons’ firm and David Tepper (Trades, Portfolio) also have significant positions.
Cenovus Energy
With an impact of -3.27% on the equity portfolio, the guru exited his 7.27 million-share stake in Cenovus Energy (CVE, Financial). Shares traded for an average price of $17.77 each during the quarter.
GuruFocus research found Loeb lost approximately 4.27% on the investment, which was previously his 10th-largest holding.
The Canadian producer of oil and natural gas has a $40.67 billion market cap; its shares were trading around $21.26 on Wednesday with a price-earnings ratio of 10.65, a price-book ratio of 1.99 and a price-sales ratio of 0.81.
The GF Value Line suggests the stock is fairly valued currently.
The company has average performance potential based on its GF Score of 76, driven by a high profitability rank, middling marks for financial strength, GF Value and momentum and a low growth rating.
Holding 0.44% of Cenovus Energy’s outstanding shares, Steven Cohen (Trades, Portfolio) is Cenovus’ largest guru shareholder. Hotchkis & Wiley, Dalio’s Bridgewater, Simons’ Renaissance Technologies, Stanley Druckenmiller (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Greenblatt and Lee Ainslie (Trades, Portfolio) also own the stock.
Additional trades and portfolio performance
Other new positions Loeb established during the quarter were TJX Companies Inc. (TJX, Financial), Range Resources Corp. (RRC, Financial), Ferguson PLC (FERG, Financial), Take-Two Interactive Software Inc. (TTWO, Financial), Comstock Resources Inc. (CRK, Financial), Relay Therapeutics Inc. (RLAY, Financial) and TPI Composites Inc. (TPIC, Financial).
The guru’s $5.51 billion equity portfolio, which is composed of 59 stocks, is most heavily invested in the health care, utilities and consumer defensive sectors.
Third Point posted a return of 22.9% for 2021, underperforming the S&P 500’s 28.7% return.
