AIG, Delphi, and More: Billionaire Dan Loeb’s Cheap Stock Picks

Billionaire Dan Loeb is best known for his activist investing, but his fund Third Point simply manages too much capital to be purely focused on activist crusades like Loeb’s recent replacement of Yahoo’s CEO. For example, Third Point’s recent 13F revealed a number of stocks in the fund’s portfolio which are priced very low in terms of their trailing earnings. Naturally, many of these stocks trade at low earnings multiples because they are out of favor with the market or aren’t seen to have good business prospects. And of course investors can’t buy every cheap stock that any of a large number of billionaire investors likes. Still, we think that they make a good starting point for further review. Here are five stocks that Third Point owned at the end of September (see the full list of stocks from their 13F filing) with trailing and forward P/E multiples of 10 or lower:

THIRD POINT

Loeb and his team had initiated a position of 2.3 million shares in American International Group, Inc. (NYSE:AIG) during the second quarter, and between July and September they increased their stake further to a total of 23.5 million shares. AIG was a hot stock in the hedge fund community during the quarter: it grabbed the #3 spot on our list of the most popular stocks among hedge funds (see the full rankings) despite not even being in the top ten at the end of June. Trading at about half the book value of its equity, and at 10 times analyst consensus for 2013, we think that it is a value stock and has plenty of room to rise in price even if it slightly underperforms expectations.

Delphi Automotive PLC (NYSE:DLPH) was another low-multiple stock in Third Point’s portfolio. The $11 billion auto parts company, whose products include electrical, powertrain, and safety systems, carries trailing and forward P/E multiples of 9 and 8, respectively. The entire auto ecosystem- including the carmakers themselves as well as auto parts suppliers- is trading cheaply as the market expects weak macro going forward, particularly in Europe. With Delphi reporting flat earnings in the third quarter compared to the same period in 2011, it seems to be doing fine for now and so it might be a good value.

Third Point owned 2 million shares of UnitedHealth Group Inc. (NYSE:UNH), which recently joined the Dow Jones Industrial Average to represent the health insurance industry. In addition to trading at 10 times earnings, UnitedHealth can boast a fairly low correlation with the broader market (it beta is 0.5) and good growth last quarter (its earnings, for example, rose 23% versus a year earlier). The biggest concern in our minds is uncertainty regarding future regulation of the insurance industry and the healthcare sector more generally, but UnitedHealth is certainly worth considering as a value stock.

WellPoint, Inc. (NYSE:WLP), where Loeb increased his stake 47% to nearly 1.3 million shares is an even cheaper health insurer; it trades at 7 times earnings, whether we consider its historical results in the last four quarters or analyst estimates for next year. However, its business has been about flat and the stock price has fallen 22% in the last year, as the market has perceived it to be underperforming its peers. Again, we’d be very interested in looking more closely at the company though we’re not sure we’d call it a better buy than the fast-growing UnitedHealth.

Another health insurer that Third Point owned was CIGNA Corporation (NYSE:CI), which billionaire David Einhorn of Greenlight Capital had recommended as one of his long picks at the Value Investing Congress in October (check out why Einhorn liked Cigna). Like the other health insurers, Cigna would normally be considered a value stock at 10 times trailing earnings, and with the company expected to grow its business further in 2013 the forward P/E is only 8. Those growth projections are partly derived from a recent acquisition, suggesting that the company won’t need much organic growth to hit the target. We have quite a bit of respect for Einhorn as well as Loeb and with the stock looking cheap we’d be leaning toward Cigna at the moment, though any of the insurers could prove a good value barring extremely punishing regulations.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!