In this article, we will discuss the 10 Best Stocks to Buy According to Billionaire Dan Loeb.
Daniel Loeb is the founder and CEO of Third Point. He graduated from the University of Columbia with a degree in economics in 1983. Soon after his graduation, he started his career in the investment sector by working at Warburg Pincus, a private equity firm. Over the course of his successful career, Daniel served on boards of several publicly traded companies, including Massey Energy, Ligand Pharmaceuticals, and Sotheby’s. On October 2020, he was awarded the Alexander Hamilton Award for his philanthropic service by the Manhattan Institute.
Third Point is a hedge fund based out of New York, which was launched in 1995 by Daniel Loeb. The fund invests in equity as well as fixed-income markets and invests in value stocks with a long-term view to generate outsized returns for its investors. At the end of Q2 2022, Third Point’s investment in the equity market amounted to over $4.2 billion. The firm holds a concentrated portfolio with PG&E Corporation (NYSE:PCG) as its biggest holding.
Our Methodology
We picked the top 10 stocks from Third Point’s portfolio as of Q2 2022.
10. Cenovus Energy Inc. (NYSE:CVE)
Third Point Stake: $138,298,000
Percentage of Third Point’s Portfolio: 3.27%
Number of Hedge Fund Holders: 42
Cenovus Energy Inc. (NYSE:CVE) is an oil company engaging in the development of its oil assets. Moreover, the firm produces conventional crude oil, natural gas liquids, and natural gas. Third Point continued to add onto its investment in Cenovus Energy Inc. (NYSE:CVE), as it increased its stake in the company by 264% during the second quarter. The total investment value of the fund in Cenovus Energy Inc. (NYSE:CVE) amounted to approximately $138 million at the end of Q2 2022.
On October 14, 2022, Jason Bouvier, an analyst at Scotiabank, trimmed his price target to C$33 while maintaining an Outperform rating on the company’s shares. Cenovus Energy Inc. (NYSE:CVE) has outperformed the market in 2022 and is up 48.7% YTD.
L1 Capital mentioned the firm in its Q2 2022 investor letter, outlining that:
MEG Energy and Cenovus Energy Inc. (NYSE:CVE): We continue to remain positive on the outlook for Energy. While a potential U.S. recession would result in softer oil demand, we believe this would be more than outweighed by China re-opening over the coming year (which would see a major lift in car and air traffic). Oil supply continues to remain constrained with sustained declines in global inventories and OPEC+ remains unable to grow production significantly. With the sell-off in energy stocks, MEG and Cenovus are currently generating more than 20% of their market cap in cash flow with large dividends and share buybacks to come.
Cenovus Energy (Long +14%) shares rallied driven by continued strong free cash flow generation, as well as being positioned to benefit from strong refining margins and downstream operations. The company recently announced a significant increase in dividends, which gives us greater confidence on the potential for a 100% return of free cash flow generation via dividends and buybacks from early CY23. Given the long-life nature of its oil sand assets and its low cost of production, we estimate the company is free cash flow break-even at an oil price of ~US$40/bbl. At present, oil prices are more than double this break-even point, implying considerable upside to consensus cash flow estimates (if prices remain near current levels). There are also additional value realisation catalysts with the company continuing to progress the de-gearing of its balance sheet via organic cash generation and asset sales.
At the end of Q2 2022, Soroban Capital Partners remained the leading stakeholder of the company, with a holding of 50,338,822. As per Insider’s Monkey database, 42 hedge funds owned stakes in Cenovus Energy Inc. (NYSE:CVE) at the end of the second quarter.
In addition to Cenovus Energy Inc. (NYSE:CVE), Third Point had investments in UnitedHealth Group Incorporated (NYSE:UNH), Danaher Corporation (NYSE:DHR), and PG&E Corporation (NYSE:PCG).
9. CSX Corporation (NASDAQ:CSX)
Third Point Stake: $144,283,000
Percentage of Third Point’s Portfolio: 3.41%
Number of Hedge Fund Holders: 63
CSX Corporation (NASDAQ:CSX) is a US-based holding corporation having holdings in the rail transportation and real estate sectors. Dan Loeb reduced his exposure to the firm by 33% during the second quarter. The fund’s investment in CSX Corporation (NASDAQ:CSX) at the end of the Q2 2022 amounted to approximately $144 million.
On September 30, 2022, Brandon Oglenski, an analyst at Barclays, reduced his price target on CSX Corporation (NASDAQ:CSX) to $35. Although the analyst has an Overweight rating on the shares, he believes that margins in the railroad sector will continue to face pressure in the short term due to volume decline and labor issues.
Clearbridge Investments mentioned CSX Corporation (NYSE:CSX) in their Q4 2021 investor letter. This is what they had to say:
On a regional basis, the U.S. and Canada was the top contributor to quarterly performance, of which U.S. rail operators CSX (NYSE:CSX) was among the lead performers. CSX (NYSE:CSX) is one of five leading North American rail companies, with over 21,000 miles of rail, covering 23 states and 40+ ports. CSX (NYSE:CSX) is engaged in the transportation of rail freight in the Southeast, East, and Midwest via interchange with other rail carriers, to and from the rest of the U.S. and Canada. CSX (NYSE:CSX) performed well during the quarter after the company beats market expectations on its third-quarter results. The beats were largely driven by strong pricing, which could be hitting record highs, and healthy commodity/coal volume driven by the current energy crisis.
As per Insider’s Monkey database, 63 hedge funds owned stakes in Cheniere Energy, Inc. (NYSE:LNG) at the end of the June quarter. Soroban Capital Partners was the most bullish fund on the company’s stock, with a total holding of 52,600,295.
8. Colgate-Palmolive Company (NYSE:CL)
Third Point Stake: $159,078,000
Percentage of Third Point’s Portfolio: 3.76%
Number of Hedge Fund Holders: 55
Colgate-Palmolive Company (NYSE:CL) has developed to become a significant worldwide consumer goods company since its establishment in 1806. Colgate-Palmolive Company (NYSE:CL) was a new addition to the fund’s portfolio during the second quarter as Dan Loeb purchased 1,985,000 shares of the company.
On October 14, 2022, Peter Grom, an analyst at UBS, reduced his price target on the company to $80 while maintaining a Buy rating on the stock. The analyst believes that Colgate-Palmolive Company (NYSE:CL) has a strong history of surviving in all business cycles and will continue to do well, but the foreign exchange impact due to the appreciation of the US dollar will have an adverse impact on the company.
In its Q2 2022 investor letter, First Eagle Investments Global Fund mentioned Colgate-Palmolive Company (NYSE:CL) and explained its insights for the company. Here is what the fund said:
Shares of consumer staples giant Colgate-Palmolive have performed well as investors rotated into more recessionary-resilient defensive stocks amid the broader selloff during the second quarter. The company raised revenue guidance for 2022 but lowered its margin outlook because of higher costs for raw materials, packaging and logistics; we believe that the company’s size and market share provide it with options to mitigate the inflation challenges it faces. We continue to like Colgate- Palmolive’s dividend and previously announced $5 billion stock buyback program.
7. DuPont de Nemours, Inc. (NYSE:DD)
Third Point Stake: $171,186,000
Percentage of Third Point’s Portfolio: 4.05%
Number of Hedge Fund Holders: 44
DuPont de Nemours, Inc. (NYSE:DD) is a multinational specialty chemicals firm that was established in 2019. Third Point decreased its stake in the company during the second quarter as the fund sold 9% of its stake. The firm’s investment value at the end of Q2 2022 amounts to approximately $171 million.
On October 10, 2022, P.J. Juvekar, an analyst at Citi, made a downward revision to his price target on DuPont de Nemours, Inc. (NYSE:DD). The analyst now has a price target of $67 on the company’s shares. He believes that chemical companies will not thrive at least till spring next year as global economies face a recession and the spending in the housing and construction sector slows down.
Here is what Rhizome Partners has to say about DuPont de Nemours, Inc. (NYSE:DD) in its Q1 2021 investor letter:
We have written extensively about the anticipated DuPont’s Reverse Morris Trust merger with International Flavors and Fragrances (IFF) in January of 2021. During the quarter, DuPont shares traded up significantly in anticipation of the deal. We tendered about 40% of our DuPont shares for IFF and received about half of the allocation due to pro-ration. Investors are finally starting to appreciate DuPont’s effort to cut costs, streamline operations, and spin off companies into pure-play companies that trade at higher multiples. We are still getting used to the higher multiples that investors will pay for larger market cap and pure play companies such as DuPont.
6. EQT Corporation (NYSE:EQT)
Third Point Stake: $258,860,000
Percentage of Third Point’s Portfolio: 6.12%
Number of Hedge Fund Holders: 52
EQT Corporation (NYSE:EQT) is a producer of natural operating in the United States. Dan Loeb reduced his stake in EQT Corporation (NYSE:EQT) by 16% during Q2 2022, and at the end of the quarter, the fund held 7,525,000 shares of the company.
On September 19, 2022, Phillip Jungwirth, an analyst at BMO Capital, upgraded his rating on EQT Corporation (NYSE:EQT) to Outperform. The analyst has a price target of $65 on the company’s stock and believes that the management of the company has taken effective cost management measures. Along with that, the analyst argues that gas prices are expected to remain elevated in the future, which will lead to better performance for the company in 2023.
In its Q2 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks, and Marathon Petroleum Corporation (NYSE:MPC) was one of them. Here is what the fund said:
We initiated a position in EQT (NYSE:EQT), the largest natural gas producer in the U.S., which possesses high-quality acreage within the Marcellus Shale basin. EQT has benefited from tight supply and demand dynamics as cleaner-burning natural gas takes global share from coal and exports to Europe and Asia provide an avenue of demand growth. Longer-term contracts enhance EQT’s earnings visibility as Europe eliminates its dependence on Russian gas.
5. Ovintiv Inc. (NYSE:OVV)
Third Point Stake: $270,443,000
Percentage of Third Point’s Portfolio: 6.4%
Number of Hedge Fund Holders: 47
Ovintiv Inc. (NYSE:OVV) is an oil and gas company with holdings in the Permian, Eagle Ford, Montney, and Duvernay regions. Third Point increased its stake in Ovintiv Inc. (NYSE:OVV) by 172% during the second quarter. At the end of the quarter, the fund held 6,120,000 shares of the company.
On September 26, 2022, Jeanine Wai, an analyst at Barclays, increased her target price on Ovintiv Inc. (NYSE:OVV) to $78. The analyst believes that the company will produce sufficient free cash flow in the future, which has warranted an increase in the price target for the firm.
Here is what Carillon Tower Advisers specifically said about Ovintiv Inc. (NYSE:OVV) in its Q2 2022 investor letter:
Oil and gas exploration and production company Ovintiv Inc. (NYSE:OVV) fell as oil prices faded late in the quarter due to aggressive Fed rate hikes and growing credit fears in emerging markets, a source of demand growth for oil. Although oil and fuel product inventories remain scarce, the Fed has been so aggressive with rhetoric and tightening that the dollar rose sharply and investor sentiment shifted toward anticipating a recession. Ovintiv is a self-help improvement story as it lowers debt levels through cash generation and asset sales, while detailing plans to buy back shares more aggressively and pay a higher dividend.
At the end of Q2 2022, Third Point held the highest stake in Ovintiv Inc. (NYSE:OVV), with an investment value of over $270 million in the company, constituting 6.4% of the fund’s portfolio. According to Insider’s Monkey database, 47 hedge funds owned stakes in the company at the end of the second quarter.
4. UnitedHealth Group Incorporated (NYSE:UNH)
Third Point Stake: $292,769,000
Percentage of Third Point’s Portfolio: 6.92%
Number of Hedge Fund Holders: 91
UnitedHealth Group Incorporated (NYSE:UNH) is a health insurance provider with over 50 million members worldwide. The fund’s exposure to UnitedHealth Group Incorporated (NYSE:UNH) during the previous quarter decreased by 6%. Third Point’s investment value at the end of Q2 2022 amounts to over $292 million.
On October 14, 2022, UnitedHealth Group Incorporated (NYSE:UNH) announced strong results for Q3 2022. The company was able to grow its revenue by 11.8% YoY as it reported a topline of $80.9 billion for the quarter, beating the market estimate by $360 million. Moreover, the normalized EPS of $5.79 posted by the company surpassed consensus estimates by $0.35. The management highlighted that the company the new sales and customer retention remained strong during Q3 2022, and the company has a high amount of order backlog to deal with in the coming quarter.
Here is what Distillate Capital has to say about UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2022 investor letter:
UnitedHealth Group was among the 2 largest trims at around 1% each. Each stock was up 1% in the quarter compared to the 16% price decline for the S&P 500 and the positions were reduced as the valuations became somewhat less appealing, though still attractive enough to warrant inclusion.
3. SentinelOne, Inc. (NYSE:S)
Third Point Stake: $491,769,000
Percentage of Third Point’s Portfolio: 11.64%
Number of Hedge Fund Holders: 26
SentinelOne, Inc. (NYSE:S) is a cybersecurity solutions provider. Dan Loeb reduced his exposure to SentinelOne, Inc. (NYSE:S) during the second quarter of 2022 by 20%. The fund held 21,078,846 shares of the company at the end of Q2 2022.
On October 06, 2022, Carson Sippel, an analyst at SMBC Nikko Securities, started coverage of SentinelOne, Inc. (NYSE:S) with a price target of $30. The analyst is currently Neutral on the company’s stock. Although the analyst believes that the company is in a strong position to achieve growth and increase its revenue substantially by the fiscal year 2025, the macro-environment remains uncertain, which is why he is currently initiating coverage of the company with a Neutral rating.
Here is what ClearBridge Investments SMID Cap Growth Strategy has to say about SentinelOne, Inc. (NYSE:S) in its Q4 2021 investor letter:
We added six new positions in the fourth quarter. We see next-generation cybersecurity provider SentinelOne, although early in its growth lifecycle, as capable of taking share from legacy players in the antivirus and broader cybersecurity industry.
2. Danaher Corporation (NYSE:DHR)
Third Point Stake: $583,096,000
Percentage of Third Point’s Portfolio: 13.8%
Number of Hedge Fund Holders: 82
Danaher Corporation (NYSE:DHR) designs and markets products in the pharmaceutical and industrial sectors. The fund decreased its stake in the company by 8% during the previous quarter. Third Point Stake in Danaher Corporation (NYSE:DHR) amounts to a value of approximately $583 million.
On October 10, 2022, Luke Sergott, an analyst at Barclays, reduced his price target for Danaher Corporation (NYSE:DHR) to $305 while keeping an Overweight rating on the shares. The analyst believes that the life-sciences group can see a decline as risks related to foreign exchange still remain.
Weitz Investment Management mentioned Danaher Corporation (NYSE:DHR) in its Q2 2022 investor letter. Here is what the firm has to say:
Consistent with that approach, portfolio activity among our long holdings tilted toward purchases. We added to almost half our holdings by varying degrees, and we were pleased to initiate new positions in Danaher (NYSE:DHR). Danaher is a provider of instruments and diagnostic tools to medical, life science, and other desirable end-markets worldwide. The business generate significant free cash flow, possess strong competitive positions, and have excellent management teams with demonstrated acquisition records.
At the end of quarter ending June 2022, Fisher Asset Management was the most bullish on Danaher Corporation (NYSE:DHR), with a holding of 3,839,035 shares. As per Insider’s Monkey database, 82 hedge funds owned stakes in Danaher Corporation (NYSE:DHR) at the end of Q2 2022.
1. PG&E Corporation (NYSE:PCG)
Third Point Stake: $652,692,000
Percentage of Third Point’s Portfolio: 15.44%
Number of Hedge Fund Holders: 51
PG&E Corporation (NYSE:PCG) operates in the electricity and gas sector and is based in California. Dan Loeb sold some of its shares during Q2 2022. Third Point’s investment in the company constitutes 15.44% of the overall portfolio of the fund and held 65,400,000 shares of the company at the end of the second quarter of 2022.
On October 10, 2022, Shelby Tucker, an analyst at RBC Capital, increased his price target on PG&E Corporation (NYSE:PCG) to $19 as he kept Outperform rating on the stock. As per the analyst, there are significant upside drivers in place that will ensure the re-rating of the share price.
Here is what GoodHaven Capital Management said about PG&E Corporation (NYSE:PCG) in its Q2 2022 investor letter:
Other activity in the period included eliminating our holding in PG&E Corporation (NYSE:PCG) and adding a few new holdings – the luxury furniture and lifestyle company RH (formerly Restoration Hardware) and Goldman Sachs. A few important developments changed at PG&E including higher future capex plans and changes in long-term guidance, and so we changed our mind and sold. Purchases were made on a handful of occasions in 2020 and mid-2021 at an approximate average price of $9.20 and fully sold during February 2022 at an approximate average price of $11.42, earning approximately 24%.
You can also take a look at 10 Dividend Stocks That Are Too Cheap To Ignore and Hedge Fund Investor Letters Q3 2022.
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Disclosure: None. 10 Best Stocks to Buy According to Billionaire Dan Loeb is originally published on Insider Monkey.
