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Billionaire Dan Loeb’s Cheap Stock Picks Include Hess Corp. (HES)

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We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including billionaire Dan Loeb’s Third Point. By processing these filings in our database, we’ve shown that it’s possible to develop investment strategies based on the included information; for example, the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year. We can also screen filings from top managers according to a number of criteria, including the traditional value metrics of low earnings multiples. Read on for our quick take on Loeb’s five largest holdings in stocks with both trailing and forward P/Es of 13 or lower (or see the full list of stocks Third Point reported owning).

The fund cut its stake in Murphy Oil Corporation (NYSE:MUR), but the oil and gas company was still one of Loeb’s ten largest 13F holdings by market value at a position of 2.5 million shares. Murphy carries trailing and forward P/Es of 12 and 10, respectively, which is more or less in line with where many larger oil majors are trading. There is something of a premium here as investors expect the company to create vale by spinning out its retail and marketing operations; spinouts allow management to better focus on improving each segment’s operations rather than dealing with the needs of the entire organization. Learn more about investing in spinouts.

Dan Loeb Third PointLoeb increased his holdings of AbbVie Inc (NYSE:ABBV), a $68 billion market cap pharmaceutical company, to a total of close to 3 million shares. The stock is valued at 13 times trailing earnings, with trailing earnings per share numbers essentially matching analyst consensus for 2014. As with many large cap drug manufacturers, AbbVie offers a decent yield (of 3.7%) at current prices and dividend levels. Renaissance Technologies, whose founder Jim Simons is now a billionaire, initiated a position of 2.4 million shares during the first quarter of 2013 (check out Renaissance’s stock picks).

Agrium Inc. (USA) (NYSE:AGU), a wholesaler and retailer of fertilizer and other agricultural inputs, was another of Third Point’s cheap picks with the filing disclosing ownership of 1 million shares. Barry Rosenstein’s JANA Partners recently failed in its activist attempt to break up the company, but the stock still looks somewhat attractive with a valuation of only 9 times trailing earnings. However, both revenue and net income declined in the first quarter of 2013 versus a year earlier. In addition, agriculture related companies are generally priced at low earnings multiples in the current market environment.
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