Dan Loeb‘s investing prowess can be summarized by his New York based hedge fund, Third Point‘s annualized return since its inception in 1996. The metric under discussion stands at a staggering 17.3%, and that compares more than favorably with the S&P 500 returns during the same period, which stand at 7.7%. 2014 hasn’t exactly been a stellar year for Loeb, whose Offshore Fund only gained 5.7% and Ultra Fund 6.8% during the last fiscal year, compared with the S&P 500’s 13.7% return. However, an investor of Loeb’s stature can’t be expected to lay down for long.
In his investor letter, Loeb vows to fight the market volatility this year by investing in companies with ‘solid cash flow and consistent growth’. This makes it worthwhile for any investor to have a look at the new companies that he has found which fit his criteria. Hence, we will look at the top three new positions that Third Point has initiated during the fourth quarter.
Phillips 66 (NYSE:PSX) is first on this list. With a stake of 5.0 million shares valued at $358.5 million, the position comprises 3.23% of Third Point’s portfolio value. Billionaire investor David E. Shaw also increased the stake his fund has in the company by nearly 33% during the fourth quarter. His fund, D.E Shaw, held 13.81 million shares, with a market value of $990 million at the end of 2014.
Loeb’s investment in Phillips 66 is particularly smart considering the discounted value of the stock price. In light of a 44% dip in oil prices, the market sold out of anything that had oil written on it. The stock fell 7.7% during 2014. However, the company made use of the oil price cuts at the back end and sold its refined products such as gasoline and diesel at a much higher spread than would have otherwise been possible. This led to the Marketing and Specialties unit, which sells these refined products more than tripling its profits from last year.
Shares of Phillips 66 (NYSE:PSX) are up 11.2% year-to-date. The downstream energy company had a blowout fourth quarter with reported Earnings per Share (EPS) standing at $1.63, which beat estimates by $0.29. With a market cap of $43.31 billion, Phillips 66 (NYSE:PSX) is currently trading at a forward earnings multiple of 11.03.
Citigroup Inc (NYSE:C) is Dan Loeb’s choice in the finance sector and also one of the top 10 stock choices among the 737 hedge funds that we track at Insider Monkey. Third Point bought 5.0 million shares of the financial services holding company, valued at $270.55 million. The position represents 2.44% of the fund’s portfolio value. Other billionaires we track at Insider Monkey who also have significant holdings in Citigroup Inc (NYSE:C) include Eagle Capital Management’s Boykin Curry, and Ken Fisher of Fisher Asset Management. Boykin’s position is worth $1.43 billion, consisting of about 26.43 million shares while Fisher’s stake is valued at $629.74 million comprising some 11.64 million shares.
Citigroup Inc (NYSE:C)’s shares are down nearly 5.8% year-to-date on the back of not just a $2.7 billion charge that the holding company set aside to meet various settlement costs and an $800 million one-time charge to cover restructuring costs, but also a poor earnings release for the fourth quarter. This involved a poor performance at the bank’s fixed-income trading desk, and unfavorable exchange rate movements which eclipsed the strong performance of its global consumer banking arm.
However, considering that the stock of this $155.47 billion market cap company is currently trading at a forward earnings multiple of 8.78, it is cheap. A turnaround for a company of Citigroup Inc (NYSE:C)’s stature is certainly not of the cards, and is perhaps also the reason that has led the distinguished investors mentioned above to take or maintain significant positions in the company.