BBWI - Analyzing 13Fs: Daniel Loeb's Third Point Enters Nvidia And Big Tech

2023-08-24 13:24:45 ET

Summary

• This article discusses Mr. Loeb's 13F portfolio, which we have not been previously covered.
• The fund's largest ownership stake is now in Bath and Body Works.
• The famed investor is now heavily invested in the tech sector and made substantial sales across the healthcare sector.

Quarterly Overview

We haven't covered Mr. Loeb's 13F portfolio before but this quarter makes for an ideal first article as the famed investor rearranged some of his funds largest holdings. Loeb has long been known as a somewhat of an activist investor, sometimes even writing scathing letters to the management of the companies whose stock he's buying. This quarter however the funds 13F filing tells a slightly different story. Their largest ownership stake is now in none other than Bath & Body Works ( BBWI ) and sits at around 6% of the retailers outstanding shares. The next notable stake is just 3% of oil and gas company Denbury ( DEN ) which is a position we'll discuss at more length below. This quarter Loeb and Third Point seemingly set their sights on the technology sector either opening or expanding stakes in Amazon ( AMZN ), Microsoft ( MSFT ), Taiwan Semiconductor ( TSM ), Alibaba Group ( BABA ), and Nvidia ( NVDA ). All four of these sit in Third Point's top 10 holdings.

6 of the funds 10 largest holdings from last quarter are still in the top 10 but 3 new positions and a further expanded position made their way into the top spots. In full, throughout Q2, Third Point opened 10 new positions and closed out of 6. AUM grew to around $6.5 billion from $6.1 billion at the end of Q1. He further expanded on 10 holdings and reduced exposure to 6. His positions in Ferguson plc ( FERG ), American International Group ( AIG ), and Aurora Innovation, Inc ( AUR ) remained untouched.

Expanded Positions:

Denbury Inc ((DEN)): This mid-sized oil and gas company made headlines back in mid-July when Exxon ( XOM ) announced they would be acquiring DEN in an all-stock deal worth $4.9 billion. DEN provides XOM with infrastructure and strategy to take advantage of lucrative carbon capture tax credits. The company owns and operates around 1300 miles of CO2 pipelines across the United States. Third Point's Q1 13F showed they had a small position of 250,000 DEN shares. During Q2 they grew that to 1,675,000 shares, nearly a 600% increase. The fund would have been able to purchase shares anywhere between $83 and $95. Today the company trades at about $90 a share.

Alibaba Group Holding ((BABA)): The Chinese e-commerce giant and one of the largest companies by market capitalization on the planet made its way into Third Point's top 10 holdings this quarter. Confidence in the underlying strength of China's economy has faltered in recent months as global investors digest events like the Evergrande fallout. Nonetheless the fund added some 1.6 million shares during Q2 between prices of $78 and $98. Today the stock trades at $88 a share.

Jacobs Solutions Inc ( J ): Jacobs Solutions operates as a engineering and technology consultancy group for clients both in the U.S. and internationally. While Loeb's fund didn't acquire a significantly sized stake in J itself, they grew their own position by 630% throughout the quarter buying more than 1.1 million shares between $109 and $118 a share. Today J stock trades at $135 a share. The most recent significant news for the firm is likely the $600 million senior note sale they announced last week.

Microsoft Inc ((MSFT)): Third Point added a considerable 470,000 shares of the global tech giant in Q2, expanding their existing position by about 45%. The stock has had a strong 2023, gaining 34% YTD and as much as 50% back in mid-July. Share prices have dipped since, despite posting earnings above expectations. If you take into account the new 1,650,000 position the fund opened in Activision ( ATVI ) they seem to betting on MSFT's ability to restructure the deal to the regulators satisfaction ultimately leading the way to closure of the $69 billion deal. Today MSFT stock trades at $323 vs. the $275-$348 range it traded in throughout Q2.

New Positions:

Amazon ((AMZN)): This marks without a doubt the funds largest purchase of the quarter. They added 4,100,000 shares of the consumer cyclical giant, a position that today would be worth nearly $550,000,000 assuming they haven't offloaded any shares since the end of Q2. Interestingly, Third Point held a similarly sized position in AMZN until the end of Q1 2022 when they dumped pretty much all the stock they owned. Timing on the trade appears near perfect as AMZN lost nearly half of its market value in 2022 just to gain close to 60% so far YTD. Third Point bought in Q2 between $97 and $130 a share whereas today the stock sells at about $134.

Taiwan Semiconductor ((TSM)): The major semiconductor manufacturer has had a somewhat volatile year. It started the year gaining more than 30% through mid-February, then sold off about 15-20%, gained another 30%, and now has since sold off some 13%. Economic uncertainty along with rising tensions with its neighbor, China, has been a main driver of this. Earlier in the year, Warren Buffett also announced he had lessened his stake in the firm amid general uncertainties concerning it's geographic location and international relations. This didn't keep Third Point from opening a 2,450,000 share stake, paying anywhere from $82 to $107. The TSM position is now Third Points 7th largest holding. Today shares trade around $92.

NVIDIA Corporation ((NVDA)): Discussion surrounding the company has turned increasingly to how expensive it currently is. NVDA currently trades at a P/E of 244x and a P/FCF of about the same. They're set to release Q2 earnings this week on Wednesday and expectations are mixed. The downside is certainly a bit scary considering the stock is already up more than 200% YTD. At this point it's becoming a bit more clear how Loeb thinks big tech is set to perform through the second half of the year with bets like this, TSM, and AMZN. He seemingly likes their valuations and doesn't see any immediately menacing outside economic factors. Third Point opened a position of 500,000 shares which at current prices is worth north of a quarter billion dollars. Today NVDA trades at around $500 and Third Point was acquiring shares for anywhere between $262 and $438.

Uber Technologies Inc ( UBER ): Uber, like AMZN and NVDA, has had a stellar 2023 thus far after losing close to half its market value the year before. The stock is up 75% YTD, gross bookings for the platform are the strongest they have ever been, and investors are beginning to think there is a profitable path for growth. Loeb and Third Point seem to agree as they added 2,775,000 shares for prices between $29 and $44. Today Uber stock trades around $44 a share.

Other notable new positions include Intercontinental Exchange Inc ( ICE ), Activision Blizzard Inc ((ATVI)), Option Care Health Inc ( OPCH ), and Horizon Therapeutics ( HZNP ).

Reduced Positions:

Google ( GOOGL ): This was likely the funds second largest sale in the quarter behind another trade we will discuss shortly. In Q1 they opened this position in GOOGL, buying a total of 4,750,000 shares. Now just several months later they've reduced it by 70% selling 3,325,000 shares. The stock has not raised any particularly red flags as of late and has posted YTD returns of 44% but perhaps that's exactly why the fund is trimming the position. Assuming they haven't sold any more GOOGL stock post end of Q2 Third Point still holds around $180 million in their portfolio.

PG&E Corporation ( PCG ): Despite being trimmed around 8% this still holds the top spot in Third Point's portfolio, currently taking up more than 14% of AUM. Their Q2 earnings were a disappointment and with the stock up around 80% since the fund first started buying back in Q3 of 2020 they may have just been taking some profits. As of the end of Q2 they still held 54,000,000 PCG shares in their portfolio, a position that today is worth around $900 million.

Closed Positions:

Colgate-Palmolive Company ( CL ): In what was most likely Third Point's largest trade of the second quarter, they unloaded their entire 11,050,000 share position in the consumer staples giant. They started buying CL shares back in Q2 of 2022 and by the end of Q3 in the same year they had built up the whole position. The stock is about as blue-chip as they come having traded in the same $65-$85 range for the last 5 plus years and Loeb's small stake in the company wasn't quite enough to turn the story around. It's a quick reversal for the fund; the position was either the first or second largest chunk of AUM for two consecutive quarters before they sold.

Salesforce, Inc ( CRM ): Sometime in Q1 of this year, Loeb's fund opened a 800,000 share position in the customer relationship management software giant. Considering by the end of Q2 the stock was up 57% it's not a huge surprise to see Third Point close this position out as it was likely at a considerable gain. Similarly to the GOOGL position, the question that arises with these sales is... Does Loeb think some of the tech sector is losing steam or is he just cutting profits and putting the cash to work. Considering the sizable new positions in the likes of AMZN, UBER, and NVDA, I am inclined to think it's the latter.

UnitedHealth Group ( UNH ): Unlike a number of the positions we've discussed today, UNH has been a part of Third Point's portfolio for a few years now. It was first opened back at the end of 2020 when the stock was around $300 to $350 and with the stock breaking above $525 a share in Q2 of this year the fund was well positioned to close this one out. That being said it is worth noting that the fund reduced or closed out a majority of its holdings in the healthcare sector. That includes HCA Healthcare ( HCA ), Catalent, Inc ( CTLT ), and Danaher Corporation ( DHR ).

Final Overview

Loeb's portfolio is looking increasingly like a mini-Nasdaq as he loads up on some of the largest names in tech. With an announcement on the direction of the Federal Funds Rate just several weeks out it would not be surprising if the portfolio experiences some increased volatility. With that being said maybe Loeb sees more long-term value in the tech sector as valuations approach the levels we saw in late 2021. Nasdaq-100 index ( QQQ ) is about 10% below its all-time high in December 2021 of around $400 a share. We will be sure to post a Q3 follow up article to Third Point's trading activity

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