BABAF - Tracking 13Fs: Daniel Loeb's Third Point Q3 2023

2023-11-17 22:36:19 ET

Summary

• Third Point's "mini-Nasdaq" like portfolio structure endures well into the third quarter of the year, with much of the major holdings leaning heavily into tech.
• Daniel Loeb's $6.0 billion US-based equity portfolio in increasingly top-heavy, with the top-10 holdings accounting for more than 70% of AUM.
• The fund added positions in companies like Meta, United States Steel, T-Mobile US, while increasing holdings in PG&E, Microsoft, and Amazon.
• They have also reduced their exposure to the likes of Alphabet and Taiwan Semiconductor, while fully exiting Nvidia during the same time period.

In today's article, we bring you the latest update in our recurring series based on analyzing 13F filings and the latest moves of some of the world's most renowned funds and asset managers. Our original article on the matter and the main thesis behind it can be accessed through this link .

Quarterly Overview

Last quarter marked a significant drift in Loeb's investment strategy as the investor dove deep into many popular high-end tech companies, such as Nvidia ( NVDA ), Amazon ( AMZN ), and Uber Technologies ( UBER ), in a move that brought his holdings very close in line with the Nasdaq. The portfolio remains "top-heavy", with a top-10 concentration of 75%. The largest holding is Pacific Gas & Electric Company ( PCG ), which takes up 15.32 percent of AUM and is closely followed by Microsoft ( MSFT ) and Danaher ( DHR ).

In line with his general investment approach, portfolio turnover at the end of the quarter has been minimal, with only a handful of his holdings being swapped around. That doesn't mean that there weren't some interesting changes in the third quarter. They disclosed having 36 stocks in the portfolio as of the end of the third quarter. Third Point has added seven positions and increased exposure to seven of its holdings. They reported that their U.S. equity-based assets under management fell by about 8% to $5.98 billion. During the same time frame, the fund also exited six positions and cut its exposure to six other holdings. Other positions have remained steady for the quarter. Above is a heat map summary of this quarter's changes.

New Positions:

Meta Platforms ( META ): Market sentiment is an exceptionally interesting phenomenon, and META might as well be one of the best examples of how a company gets completely beaten down by the market, only to display one of the most impressive turnaround stories with little changes in terms of its fundamentals. The company has generated a 166.7% year-to-date return. Third Point entered the position by buying 1.10 million shares, amounting to a $330.23 million investment, which already became one of the fund's largest holdings. Third Point bought in Q3 between $283 and $325 a share, while Meta currently trades at around $328.50.

United States Steel Corp. ( X ): This investment might mark a more speculative approach by Third Point, possibly looking to capitalize on the recent discussion surrounding the Pittsburgh-based steel giant being acquired by one of their competitors. Front-runners reportedly offering the highest bids are direct competitors Cleveland-Cliffs ( CLF ) and ArcelorMittal ( MT ), with X already rejecting a $7.3 billion cash and stock bid from the former in August. Recent revived interest in the company saw the share price lift overnight to above 30 dollars per share from the mid-20s, where the stock traded for a while up to the point. The position was acquired while the stock was trading in the $22–$32 per share range, with shares of X currently trading at around $34 per share.

The fund has also entered T-Mobile US ( TMUS ), RBC Bearings ( RBC ), Telephone and Data Systems ( TDS ), United States Cellular ( USM ), and ProPetro Holding ( PUMP ).

Expanded Positions:

PG&E Corporation ( PCG ): After having trimmed around 8% of their position last quarter, Third Point changed course and once again increased their exposure to their top holding. Another 2.86 million shares have been added, between prices of $16 and $18. The holding now takes up 15.3% of the AUM. As of the end of the third quarter, Daniel Loeb still held just shy of 57 million PCG shares in their portfolio, a position that today is worth just under a billion dollars. Keep in mind that PCG is trading close to $18 per share.

Microsoft Inc. ( MSFT ): The fund already had noticeable exposure to the tech firm but has expanded this holding by an additional 46%, marking the second consecutive quarter in which they have substantially increased their presence in MSFT. The stock remains one of the "big seven" that is pulling up the S&P500 ( SPY ) in 2023, managing to yield an impressive 54.3% year-to-date return, erasing last year's losses. Microsoft now constitutes their second-largest holding, which takes up 11.7% of AUM. The stock is now already above its all-time high for 2021. Shares of MSFT can be bought for around $369.60.

Amazon ( AMZN ): Another aspect of the tech pivot we have discussed earlier is that the e-commerce giant has been likely the biggest new addition of the third quarter. This time around, Third Point added another 14.1% to their position, solidifying Amazon's position as their 4th largest holding. AMZN's performance has outmatched even that of Microsoft, with the AWS giant returning 66.8% year-to-date, but unlike the previous acquisition, it still remains far below its all-time high. They increased their exposure in the third quarter by 14% as AMZN traded between $128 and $144 a share, while it today trades at around $143 per share.

Jacobs Solutions Inc. ( J ): Daniel Loeb saw value in the idea of a Dallas-based diversified infrastructure consulting firm. The firm was enduring years of stable growth in terms of its top and bottom lines, currently valued by the market at a NTM P/FCF of x17.10 and an EV/EBITDA of x13.20. Q3 saw Third Point buy 445,000 shares, which increased their exposure to J by nearly 33%. The position was increased while J was trading between $119 and $137 a share, while shares of the firm can currently be purchased for $134 per share.

Loeb and his fund, Third Point, have also increased their exposure to Intercontinental Exchange ( ICE ), Uber Technologies ( UBER ), and Option Care Health ( OPCH ).

Reduced Positions:

Alphabet Inc ( GOOGL ): A little more than a third of this holding was trimmed during the third quarter of the year, as Third Point began realizing some gains after an immensely impressive run-up by the one of the largest tech firms on the globe. The fund entered the position while it was trading between $88 and $103 a share and enjoyed one of the best stock performances of the year, with GOOGL returning a 51.0% year-to-date return for its investors. They have sold 525,000 shares while the traded between $117 and $138. The position now accounts for a little less than 2% of the fund's AUM, while shares of the firm are trading at around $134.

Taiwan Semiconductor Manufacturing ( TSM ): Third Point's holding in the volatile Taiwanese semiconductor manufacturer was not long-held, with the fund already cutting some of their exposure. They entered the position in the second quarter, likely scoring some small gains. Daniel disposed of 675,000 shares, or roughly a third of their holdings. The fund initially paid anywhere from $84 to $105 while entering the position, as TSM currently trades at around $98 per share.

Other notable trimmings include DuPont de Nemours ( DD ), International Flavors & Fragrances ( IFF ), Danaher Corporation ( DHR ), and Global Blue Group ( GB ).

Closed Positions:

NVIDIA Corporation ( NVDA ): We have discussed many high-end tech companies with questionable valuations in the article, but none come close to their recently acquired Nvidia holding, which was fully cleared out this time around. Its current valuation implies the market is willing to pay a NTM P/FCF of x34.90 and an EV/EBITDA of x35.80. The third quarter saw them sell all of their half-million shares while the stock traded in the $408 to $492 range. This likely saw them nearly double their initial investment. Since Q2 of 2023, when they first entered the position, the price has roughly doubled as NVDA delivered a substantial 240% year-to-date return, making it one of the most successful stocks in the S&P500 index. NVDA currently trades at around $492 per share.

Activision Blizzard ( ATVI ): This was not a case of Third Point necessarily closing out the position, but more the merger-arbitrage that started all the way back in early 2022, has finally reached its conclusion. The fund recognized the risk-reward profile of the arbitrage as positive and bought 800,000 shares at the beginning of the year. Back then, they paid somewhere between $71 and $85 per share for ATVI. This means they realized roughly a 20% gain on this merger arbitrage, with MSFT buying out all Activision Blizzard shareholders at $95 per share earlier this month. ATVI no longer trades as an independent company.

Daniel Loeb has also exited Alibaba Group Holding ( BABA ), Advanced Micro Devices ( AMD ), HCA Healthcare ( HCA ), and Micron Technology ( MU ).

Final Overview

We defined Third Point's portfolio as a "mini-Nasdaq"-like structure in the previous article, which we still believe is still largely the case. While some of the tech positions have been trimmed or completely cleared out, the majority of the holdings are still heavily tech-oriented. Another notable point from the third-quarter reshuffling of the Third Point portfolio is that, even though the portfolio leans heavily into mega-cap tech stocks, those with already questionable and possibly far-stretched valuations are being disposed of. To recall an interesting statistic, it was only seven companies that carried the S&P 500 this year, and Daniel Loeb's had holdings in five of them.

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