Daniel Loeb (Trades, Portfolio), founder of hedge fund Third Point, disclosed this week that his top buys for the first quarter included several companies the firm sold out of during the prior quarter, including United Technologies Inc. (UTX, Financial) and Marathon Petroleum Corp. (MPC, Financial).
Loeb said in his shareholder letter that the Third Point Offshore Fund gained 8.8% during the quarter, driven by strong activist and constructivist positions including Nestle SA (XSWX:NESN, Financial), Baxter International Inc. (BAX, Financial), United Technologies and Campbell Soup Co. (CPB, Financial).
Guru reasserts activist approach to investing
Loeb said in his letter that Third Point has made 45 active or constructive investments since 2000 and that his activist strategy has returned an annualized return of 21% since 2011. Third Point engages with the management teams of companies the firm invests in and pushes for catalysts to unlock shareholder value.
As of quarter-end, Third Point’s equity portfolio consists of 32 companies, of which 12 are new positions. The top-six positions are United Technologies, Fox Corp. (FOXA, Financial), Marathon Petroleum, Boston Scientific Corp. (BSX, Financial), Celgene Corp. (CELG, Financial) and Ross Stores Inc. (ROST, Financial).
United Technologies
Having sold out of United Technologies during fourth-quarter 2018, Loeb purchased 6.48 million shares of the Farmington, Connecticut-based company during the first quarter. Shares averaged $120.52 during the first quarter; Loeb dedicated 9.29% of his equity portfolio to the holding.
Loeb and fellow activist investor Bill Ackman (Trades, Portfolio) plunged into United Technologies during first-quarter 2018 and lobbied for the company to split into three separate businesses. Although Loeb backed away from United Technologies during the “sharp decline” in fourth-quarter 2018, he rekindled the position as equity markets “bounced back” during the first quarter. The Third Point manager said in his letter that the “dovish shift” in the Federal Reserve’s policy, including the decision to not increase rates in 2019 and accelerate the end of the Fed’s balance sheet runoff, led the rally.
GuruFocus ranks United Technologies’ profitability 7 out of 10: Although the company has operating margins that are outperforming 82.76% of global competitors, United Technologies’ three-year revenue growth rate of 5.80% outperforms just 59% of global aerospace and defense companies.
Fox
Loeb disclosed a 9.755 million-share stake in Fox Corp. (FOXA, Financial), the company that spun off from Twenty-First Century Fox Inc. (TFCFA) in the merger with The Walt Disney Co. (DIS). Class-A shares of Fox Corp. averaged $38.89 during the first quarter; Loeb dedicated 3.98% of his equity portfolio to the holding.
GuruFocus ranks Fox Corp.’s financial strength 6 out of 10 on several strong signs, which include solid interest coverage of 17.59 and a debt-equity ratio of just 0.79.
Marathon Petroleum
Having exited from Marathon Petroleum during fourth-quarter 2018, Loeb purchased 3.5 million shares during the first quarter. Shares averaged $62.95 during the March quarter; Loeb dedicated 2.33% of his equity portfolio to the holding.
The Findlay, Ohio-based energy refiner operates seven refineries in the midcontinent and Gulf Coast of the U.S. GuruFocus ranks the company’s profitability 6 out of 10: Although the company’s three-year revenue growth rate of 10.20% outperforms 60.26% of global competitors, Marathon Petroleum’s operating margin is outperforming just 55% of global competitors despite increasing approximately 7.5% per year over the past five years.
Boston Scientific
Loeb purchased 5 million shares of Boston Scientific, giving the position 2.13% equity portfolio weight. Shares averaged $38.17 during the quarter.
The Marlborough, Massachusetts-based company produces less-invasive medical devices that are inserted into the human body through small openings or cuts. GuruFocus ranks the company’s profitability 7 out of 10: Even though the company’s return on assets outperforms just 51.81% of global competitors, Boston Scientific’s operating margin has increased approximately 8% per year over the past five years and is outperforming 78% of global medical device companies.
Celgene
Loeb purchased 1.75 million shares of Celgene, giving the position 1.84% equity portfolio space. Shares averaged $87.12 during the first quarter.
GuruFocus ranks the Summit, New Jersey-based drug manufacturer’s profitability 9 out of 10 on several positive signs, which include a strong Piotroski F-score of 7 and profit margins that are outperforming over 87% of global competitors.
Ross Stores
Loeb purchased 1.6 million shares of Ross Stores, giving the position 1.66% equity portfolio space. Shares averaged $91.68 during the quarter.
GuruFocus ranks the Dublin, California-based apparel retailer’s financial strength and profitability 8 out of 10 on positive signs like robust interest coverage, a strong Piotroski F-score of 7, a solid Altman Z-score of 12.03 and operating margins that are outperforming 89.78% of global competitors. Additionally, Ross Stores’ business predictability ranks 4.5 stars out of five on strong and consistent revenue and earnings growth over the past 10 years.
Disclosure: Long Ross Stores Inc.
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