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Billionaire Dan Loeb’s Top Picks Register Disappointing Returns

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Billionaire Daniel S. Loeb founded activist hedge fund Third Point LLC in 1995. The $17 billion New York-based firm lost 1.4% in 2015, which was not necessarily bad relative to the awful performance delivered by other activists and hedge fund managers. Dan Loeb, one of the most prominent hedge fund managers in the industry, has told clients that his fund managed to preserve capital last year by increasing the number of new short bets. The fund manager also said that his hedge fund reduced positions in companies exposed to China and highly-volatile commodity prices. According to our calculations, Third Point’s 23 long positions in companies with a market capitalization above $1 billion posted a weighted average loss of 1.4% for the first quarter of 2016, based on the size of each position revealed in the 13F filing for the last quarter of 2015. Even so, one should keep in mind that these calculations do not include Mr. Loeb’s short bets and other positions, so his fund’s actual performance may differ significantly from our calculations. With that in mind, let’s have a look at the activist firm’s top five positions at the end of the December quarter, as well as discuss their performance during the first quarter of this year.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5. Mohawk Industries Inc. (NYSE:MHK)

– Shares Owned by Third Point LLC (as of December 31): 2.13 Million

– Value of Third Point’s Holding (as of December 31): $402.45 Million

– Q1 Return: 0.8%

Third Point LLC trimmed its stake in Mohawk Industries Inc. (NYSE:MHK) by a mere 25,000 shares during the final quarter of 2015, ending the year with approximately 2.13 million shares valued at $402.45 million. The shares of the global flooring manufacturer were up by nearly 1% for the first quarter of 2015 and have gained 4% year-to-date. Earlier this week, analysts at MKM Partners initiated coverage on Mohawk Industries with a ‘Buy’ rating and a price target of $244, citing potential for margin improvement and possible acquisitions. Precisely, MKM’s analysts voiced their belief that the flooring manufacturer will “consolidate in an industry where scale matters while additionally using its cash flow and balance sheet to increase capacity and make operational improvements”. The company’s 2015 net sales increased $268.1 million or 3.4% year-on-year to $8.07 billion, mainly due to higher sales volumes of roughly $785 million. The increase driven by higher sales volumes was partly offset by currency headwinds, which impacted the company’s top-line figure by $490 million. Meanwhile, the stock is priced around 15.1-times expected earnings, significantly below the average forward P/E ratio of 20.2 for home improvement retailers. The smart money sentiment towards Mohawk declined in the December quarter, with the number of hedge funds bullish on the company shrinking to 55 from 64 quarter-over-quarter. Stephen Mandel’s Lone Pine Capital owned 1.89 million shares of Mohawk Industries Inc. (NYSE:MHK) at the end of December.

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