Billionaire Dan Loeb’s Third Point Bought Virgin Media Inc. (VMED), Sold Delphi Automotive PLC (DLPH) During Q1

Third Point, a hedge fund managed by billionaire Dan Loeb, has filed its 13F for the first quarter of 2013, disclosing many of its long positions in U.S. stocks as of the end of March. We track 13F filings from a number of hedge funds, including Third Point, as part of our work developing investing strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). Of course, many investors like to follow what top managers are doing- not to blindly follow them, but to get initial investment ideas for further research- and our database allows us to compare the most recent 13F to previous filings. Read on for some trends we noticed in Loeb’s activity for the first quarter of 2013 or see his previous filings.

Some new picks. Third Point bought 11 million shares of Virgin Media Inc. (NASDAQ:VMED) during the quarter, and it also initiated a position of 2.7 million shares in Tiffany & Co. (NYSE:TIF) making two of its six largest holdings by market value new positions for the fund. According to Loeb’s letter to investors, buying Virgin Media allowed the fund to increase its exposure to Liberty Global Inc. (NASDAQ:LBTYA), which plans to buy Virgin Media Inc. (NASDAQ:VMED) in a large cash and stock deal. In addition, merger arbitrage is a common hedge fund strategy as the returns from buying shares of the company to be acquired tend to exhibit little correlation with market returns. Read more about the risks and returns of merger arb strategies. Tiffany, meanwhile, recorded a 4% increase in revenue in its most recent quarterly report (for the quarter ending in January, the fourth of its fiscal year) compared to a year ago with earnings showing very little change. This isn’t necessarily a bad performance, but we would be a bit concerned about Tiffany & Co. (NYSE:TIF) from a value perspective as it is currently valued at over 20 times its trailing earnings and would need to deliver much higher growth in order to justify the current valuation.

Trimming Delphi. Loeb and his team cut their stake in auto parts manufacturer Delphi Automotive PLC (NYSE:DLPH) by about 70% and closed March with around 3 million shares in their portfolio. Wall Street analysts are predicting that the next several years will be good for Delphi Automotive PLC (NYSE:DLPH): earnings will grow enough over the next couple of years to place the current valuation at 10 times consensus for 2014, with the stock’s five-year PEG ratio being 0.6. We’d note that the sell-side is generally bullish on a number of auto related stocks, including the automakers themselves. In addition, the business has actually been seeing a decline in both revenue and earnings. Delphi Automotive PLC (NYSE:DLPH) was the largest holding of billionaire Paul Singer’s Elliott Management at the beginning of 2013 (find Elliott’s favorite stocks).

International Paper. The fund added shares of International Paper Company (NYSE:IP) during Q1, with 6.6 million shares in its portfolio per the 13F. Loeb’s quarterly letter, in addition to discussingVirgin Media Inc. (NASDAQ:VMED) and Liberty Global Inc. (NASDAQ:LBTYA), described International Paper as moving into the very attractive containerboard industry (with a majority of EBITDA coming from that business segment this year) and also making significant progress in cleaning up its balance sheet which would allow the company to return more of its cash flow to shareholders. Currently, the dividend yield is 2.5% with the company making annualized payments of $1.20 per share; Loeb wrote that he expects these payments to eventually rise as high as $2.

We actually think that we’d avoid Tiffany and Delphi- their recent financial performance has not been particularly strong, and their current valuation in terms of trailing earnings is well above value territory in each case. Delphi Automotive PLC (NYSE:DLPH) does look better in terms of forward estimates, but even if we were going to place high weight on the sell-side’s targets we’d probably favor other stocks tied to the auto industry first. As for International Paper Company (NYSE:IP), Loeb has an interesting thesis but we might want to wait for further developments in the company, and in particular wouldn’t want to recommend it to income investors until the company was closer to actually increasing its dividend.

Disclosure: I own no shares of any stocks mentioned in this article.