It’s not everyday that hedge fund royalty releases a letter to investors and when it happens, the letters are normally filled with wisdom. Given the rarity of investor letters from leading funds and the insight potentially gleaned from them, Insider Monkey covers Third Point‘s Q3 letter below:
In terms of performance, Third Point did rather well for the three months, earning 3.4% for the Offshore fund and 4.9% for the Ultra Fund. Due to those performances, the funds are up 14.5% and 23%, respectively, year to date. That beats the S&P’s return of 14.2%.
In terms of new positions, Third Point invested in Dover Corp (NYSE:DOV), an industrial giant with leading market share in several key markets such as retail refrigeration equipment, industrial printing, and artificial lifts for onshore energy production. Third Point notes, ‘Dover Corp (NYSE:DOV) shares have materially underperformed the industrial peer group over the three year period preceding our investment. A significant earnings decline in Dover Corp (NYSE:DOV)’s energy business and the substantial fall in global crude oil prices were the primary drivers behind the underperformance.’ With that said, the fund notes that ‘Since the summer, Dover has announced it is exploring strategic alternatives for its energy business’, and believes the stock has significant upside with shares trading at 14x 2019 estimated FCF. That compares to other peers that trade around ~18x 2019 consensus FCF.
In addition, Third Point is bullish on DowDuPont Inc (NYSE:DWDP) noting the stock trades at 8.6x consensus EBITDA for 2019, ‘a substantial discount to its sum-of-the-parts when we look at the multiples of the likely comparables for the three (or more) Spin-Cos’.
Dan Loeb‘s fund is also bullish on Honeywell International Inc. (NYSE:HON) liking how CEO Adamczyk is continuing to optimize the conglomerates’ portfolio and aggressively deploying capital. Third Point believes the ‘more streamlined Honeywell International Inc. (NYSE:HON) could accelerate growth and yield sustainable value creation’ and is drawn to the company’s untapped balance sheet, strong businesses, and portfolio optionality.