Daniel Loeb, a famous hedge fund manager, has managed to deliver a 21.2% return in 2012. His three biggest positions were Yahoo! Inc. (NASDAQ:YHOO), American International Group, Inc. (NYSE:AIG) , and Apple Inc. (NASDAQ:AAPL) . The first two positions were the two top winners in the fund, whereas Apple ranked as one of the top losers in 2012. Let’s have a look at those three stocks to see whether or not investors should follow Dan Loeb into those holdings.
Yahoo! A Past Greedy Move
In the third quarter 2012, Yahoo! was the biggest position in Dan Loeb’s portfolio. He owned more than 73 million shares in the company, accounting for 23% of his total portfolio at that time. In 2008, Microsoft Corporation (NASDAQ:MSFT) offered to buy Yahoo! at $31 per share, valuing the whole company at $45 billion. However, at that time founder Jerry Yang rejected the offer, as he and Yahoo!’s board thought the offer undervalued the company. The rejection seems to have been a bad move, as Yahoo!’s share price has been fluctuating in the range of $11.30-$20 since 2009.
More of an Opportunistic Play with Poor Corporate Governance
In May 2012, Dan Loeb issued a letter to the board of Yahoo! indicating the company’s poor corporate governance by pointing out the false credentials of its previous CEO, Scott Thompson. Dan Loeb urged the company to fire Thompson and to appoint an interim CEO. In July 2012, Yahoo! hired Marissa Mayer to replace Scott Thompson as CEO. The new CEO has acknowledged that the company was facing challenges in monetizing its mobile segment, as it had zero revenue coming from mobile advertisements. It was said that the company might focus on several other segments, including Sports, Finance, and Entertainment to drive up revenue. At the current price of $19.78 per share, Yahoo! is valued at 6x trailing P/E, but the forward P/E is high at 17.35x, indicating the expected earnings drop this year. However, Zacks ranked Yahoo! as a Buy due to 7 straight positive earnings surprises and impressive third quarter results.
Apple Continues to Drop
Apple was the third biggest position Dan Loeb was holding as of September 2012. It was also one of the top biggest losers for him. After Apple released its first quarter earnings results, investors rushed to sell its shares. The share price dropped to $450. However, the first quarter earnings results were not bad at all. It had $54.5 billion in revenue and $13.1 billion in quarterly profit. The EPS was $13.81, higher than analysts’ estimates of $13.48. In addition, Apple generated $23 billion in operating cash flow in the first quarter, bringing the total cash level to $137 billion. With the total market capitalization of $422.4 billion, Apple is valued at 8.8x forward P/E. Investors would get the forward dividend yield of 2.8% if they buy Apple at the current price.