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.
#4. Dow Chemical Co (NYSE:DOW)
– Shares Owned by Third Point LLC (as of December 31): 25.25 Million
– Value of Third Point’s Holding (as of December 31): $1.30 Billion
– Q1 Return: -0.3%
Billionaire Dan Loeb’s hedge fund upped its position in Dow Chemical Co (NYSE:DOW) by 1.75 million shares during the October-to-December quarter, ending 2015 with 25.25 million shares worth $1.30 billion. The 25.25 million-share stake accounted for 13.18% of the fund’s equity portfolio at the end of December. Dow Chemical has also lost some of its appeal within the hedge fund industry, as the number of funds invested in the company dropped to 49 from 56 during the fourth quarter of 2015. Just recently, the U.S. largest chemical maker agreed to pay $400 million to settle claims over alleged arrangement with competitors to fix polyurethane prices. Although the company continues to claim that it has never agreed with anyone to fix prices for polyurethane-foam materials, Dow’s management believes that the aforementioned settlement represents the most appropriate decision based on possible outcomes. In December 2015, Dow Chemical’s and E. I. Du Pont De Nemours and Co (NYSE:DD)’s Boards of Directors approved the all-stock merger between the two giants, which is anticipated to close in the second half of 2016. The two parties intend to separate the soon-to-be created DowDuPont into three independent companies: a pure-play agriculture company; a pure-play material science company; and a technology and innovation-driven specialty products company. Larry Robbins’ Glenview Capital disclosed ownership of 9.28 million shares in Dow Chemical Co (NYSE:DOW) in its 13F filing for the final quarter of 2015.
#3. Amgen Inc. (NASDAQ:AMGN)
– Shares Owned by Third Point LLC (as of December 31): 9.04 Million
– Value of Third Point’s Holding (as of December 31): $1.47 Billion
– Q1 Return: -7.0%
Mr. Loeb’s Third Point reduced its exposure to Amgen Inc. (NASDAQ:AMGN) by 807,100 shares during the fourth quarter of 2015, remaining with 9.04 million shares valued at $1.47 billion. The position constituted 14.89% of the fund’s equity portfolio at the end of the quarter. Amgen is a global biotechnology company that markets recombinant protein therapeutics for supportive cancer care, inflammation, nephrology, and bone health. The company’s total revenues grew 8% year-on-year to $21.66 billion, while its adjusted operating income increased 19% to $10.05 billion. Meanwhile, earnings per share grew at an annual rate of 19% to $10.38. Moreover, Amgen’s management anticipates 2016 total revenues in the range of $22.0-to-$22.5 billion and adjusted EPS in the range of $10.60-to-$11.00. The shares of the biopharmaceutical giant are currently changing hands at around 13.1-times expected earnings, slightly above the forward P/E ratio of 12.1 for the biotechnology industry. Amgen also distributes an annualized dividend of $4.00 per share, which equates to a current dividend yield of 2.52%. The number of “hedgies” from our comprehensive database invested in the biotechnology company decreased to 68 from 73 during the final quarter of 2015. Samuel Isaly’s OrbiMed Advisors had 2.92 million shares of Amgen Inc. (NASDAQ:AMGN) in its equity portfolio at the end of 2015.
#2. Allergan plc (NYSE:AGN)
– Shares Owned by Third Point LLC (as of December 31): 5.40 Million
– Value of Third Point’s Holding (as of December 31): $1.69 Billion
– Q1 Return: -14.2%
The New York-based hedge fund appears to have made a huge mistake when boosting its position in Allergan plc (NYSE:AGN) by 1.73 million shares in the fourth quarter of last year, as the shares of the Botox maker have plummeted following Pfizer Inc. (NYSE:PFE)’s decision to abandon the multi-billion-dollar inversion deal. The 5.40 million-share stake owned by Third Point was valued at $1.69 billion at the end 2015 and is currently worth only $1.19 billion, assuming it remained unchanged. Earlier this month, the U.S. Treasury Department issued changed regulations affecting tax inversions, which effectively blocked the mega-merger between the New York-based Pfizer and the Dublin-based pharmaceutical company. Pfizer also agreed to pay a break-up fee of $150 million to cover expenses associated with the freshly-failed transaction. Most investors are currently asking themselves whether the standalone Allergan will be able to achieve attractive bottom- and top-line growth in the upcoming years. It appears that the company’s 70 mid-to-late stage programs included in its product pipeline, which include 14 anticipated approvals and 16 regulatory submission throughout 2016, will most likely push the company forward. Allergan was the most popular stock within our database at the end of 2015, with a whopping number of 159 hedge fund managers being invested in the company at the time. John Paulson’s Paulson & Co. was the owner of 5.53 million shares of Allergan plc (NYSE:AGN) at the end of December.
#1. Baxter International Inc. (NYSE:BAX)
– Shares Owned by Third Point LLC (as of December 31): 53.85 Million
– Value of Third Point’s Holding (as of December 31): $2.05 Billion
– Q1 Return: 8.0%
Baxter International Inc. (NYSE:BAX) was largest equity position in Mr. Loeb’s equity portfolio at the end of the fourth quarter of 2015, representing the only position valued above the $2.0 billion-mark within his portfolio. The 53.85 million-share stake did not suffer any changes during the December quarter and accounted for 20.84% of Third Point’s equity portfolio on December 31. It appears that Mr. Loeb’s investment in the healthcare company has somewhat offset the losses generated by other positions, as Baxter’s shares have returned nearly 11% year-to-date. Baxter International markets a wide portfolio of renal and hospital products such as home, acute and in-center dialysis; sterile IV solutions; infusion systems and devices; and biosurgery products and anesthetics, to name just a few. The company’s net sales for 2015 totaled $9.97 billion, down from $10.72 billion reported for 2014. Net sales declined 7% year-on-year based on actual currency rates, but increased 1% on a constant currency basis. Baxter’s shares are currently trading around 23.8-times expected earnings, notably above the forward P/E multiple of 18.0 for the healthcare equipment sector. There were 51 money managers tracked by our team with stakes in the pharma company, who aggregately amassed almost 19% of the company’s total number of shares. Ken Griffin’s Citadel Advisors LLC was very bullish on Baxter International Inc. (NYSE:BAX) in the fourth quarter, ending 2015 with 7.55 million shares.