Be sure to check out our detailed stock analysis (click here). Billionaire Dan Loeb has made some interesting moves of late. Loeb is the founder of the $11 billion hedge fund, Third Point. He is a notable activist and was instrumental in getting former Yahoo! CEO Scott Thompson outed and current CEO Marissa Mayer hired. His bets on Greek bonds and Yahoo! helped his flagship fund return 21% in 2012. Let's see what some of his big moves were last quarter (check out Loeb's cheap stock picks).
Loeb's sell offs
Loeb's biggest sell off was his dumping of 710,000 shares of Apple (NASDAQ: AAPL), which had been 9.3% of Third Point's portfolio during the third quarter. As it has been well documented, the growth story might be fading for Apple. Revenue grew by 45% in 2012 and is expected to only grow by 14% in 2013.
Jefferies' take on the stock is rather intriguing, in that they believe the slowing in iPhone sales will continue, margins will continuing compressing and management's enthusiasm is fading. I cannot say I disagree, where Apple's sales in the past have performed well given its strong brand and loyal customer base. However, Samsung is becoming a formidable opponent, as well, Google continues to lead the mobile phone operating system market with over 50% market share.
Another one of Loeb's selloffs was United Technologies (NYSE: UTX), which had been 2.4% of the fund's third quarter portfolio. The company designs, manufactures and services products that incorporate advanced technologies. United has seen notable weakness due to Europe, and I don't like the company's overexposure to the construction and aerospace industries. Another headwind is the company's dependence on the U.S. government's defense budget. As well, the company should also see interim pressure related to its Goodrich acquisition and divestiture of several non-strategic assets.
Third Point was active on the additions sides, adding Morgan Stanley (NYSE: MS), Herbalife (NYSE: HLF) and Dollar General (NYSE: DG). Morgan Stanley is now Third Point's 7th largest holding. Morgan basically gets its revenues from two major sources, 40% derived from institutional securities, which includes capital raising and financial advisory, while 50% is derived from global wealth management that encompasses brokerage and investment advisory services.
M&A and investment banking performances remain weak for the company, but stable
credit spreads and strong trading activities should buoy the company over the interim. With a 0.8% dividend yield, one of the lowest in the the industry, the bank could be upping its dividend in the near future (read more about Morgan Stanley's dividend).
Herbalife was a new 3.1 million share position and now makes up 1.85% of Third Point's hedge fund. Herbalife has been under pressure of late by billionaire Bill Ackman, who is openly short the supplement company. Meanwhile, Dan Loeb (see what Loeb is up to) and Carl Icahn are on the long side (read more about Icahn's position).
Recent news shows that Herbalife has reached an agreement with Carl Icahn, for the company to increase the size of its Board to accommodate Icahn appointed directors. I would remain cautious on what the ultimate fallout could be from the billionaire battle taking place over whether Herbalife is a pyramid scheme. The company also pays a 3% dividend yield for investors willing to ride out the turmoil.
Third Point added 2.15 million Dollar General shares last quarter to put the stock as 1.72% of the fund's portfolio. Dollar General, being founded in 1939, has amassed an impressive presence across the U.S., with over 10,000 stores. Since its IPO in 2009, the stock is up 110%.
Dollar General is also expected to move beyond consumables, to include health and beauty aid products. What's more is the discount retailer plans to expand into California and the northeastern U.S. during 2014. Dollar General managed to post EPS of $0.63 last quarter, compared to $0.50 for the same quarter last year, which was on the back of 4% higher same store sales year over year.
Don't be fooled
As with a number of hedge fund managers, Loeb fell out of love with Apple during the fourth quarter and dumped the majority of his shares. Loeb has also been dumping his Yahoo! stake (see why). The hedge fund manager also sold off United Technologies, but when on a buying spree, snapping up Morgan Stanley, Herbalife and Dollar Greneral. While I like Morgan Stanley's prospects, especially after its Smith Barney takeover, and also like Dollar General given its position in the discount market, I would rather take a "wait and see" approach with Herbalife.