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Daniel Loeb Parts Ways With United Technologies in 4th Quarter

- By James Li

Third Point manager Daniel Loeb (Trades, Portfolio) disclosed last week his top sell during fourth-quarter 2018 was United Technologies Corp. (UTX), a major holding of fellow activist investor Bill Ackman (Trades, Portfolio).


Managing a portfolio of 22 stocks, Loeb follows an event-driven, value-oriented investment style. The fund manager seeks situations in which a catalyst expects to unlock shareholder value. Despite this, Loeb's sells outweighed his buys for the quarter: although the fund manager established one new holding in Cigna Corp. (CI), Loeb also sold out of Alibaba Group Holding Ltd. (BABA), Microsoft Corp. (MSFT), Netflix Inc. (NFLX) and Marathon Petroleum Corp. (MPC).

Top sell: United Technologies

Loeb sold his 8.4 million shares of United Technologies for an average price of $124.04 per share, trimming his equity portfolio 8.21%.

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Throughout 2018, Loeb and Ackman pushed for United Technologies' CEO Gregory Hayes to split the company into three separate businesses. On Nov. 27, Hayes agreed to the decision following United Tech's merger with Rockwell Collins. The CEO announced the company intends to spin off two separate companies: Otis, which contains United Tech's elevator and escalator businesses, and Carrier, which encompasses its Climate, Controls and Security businesses.

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GuruFocus ranks United Technologies' profitability 7 out of 10: even though gross profit margins have declined over the past five months, operating margins are still outperforming 83% of global competitors. Despite this, the company's 3.5-star business predictability rank is on watch as earnings have slightly declined over the past 12 months.

Alibaba

Loeb sold his 4.045 million shares of Alibaba for an average price of $147.56 per share, trimming his equity portfolio 4.66%.

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The Chinese online retail company operates China's popular marketplaces like Taobao and Tmall. GuruFocus ranks Alibaba's profitability 9 out of 10: the company's profit margins and three-year revenue growth rate are still outperforming over 96% of global competitors even though margins have declined over the past five years.

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Microsoft

Loeb sold his 4.1 million shares of Microsoft for an average price of $106.75 per share, trimming the equity portfolio 3.28%.

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Microsoft, the company founded by Bill Gates (Trades, Portfolio), develops software products like Office 365 and Azure. GuruFocus ranks the company's profitability 9 out of 10 on several positive indicators, including a strong Piotroski F-score of 8, consistent revenue growth and profit margins that outperform over 95% of global competitors. GuruFocus ranks Microsoft's business predictability 4.5 stars out of five.

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Despite strong profitability, Microsoft's warning signs include increasing long-term debt and a share price near a 10-year high. FPA Crescent Fund Chief Investment Officer Steven Romick (Trades, Portfolio) said in his quarterly letter the fund trimmed its position in Microsoft throughout 2018 as the company's price "has appreciated markedly over the past eight years."

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Netflix

Loeb sold his 1.25 million shares of Netflix for an average price of $296.05 per share, trimming the equity portfolio 3.27%.

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Netflix provides a subscription-based platform for TV shows, movies and original series. GuruFocus ranks the company's profitability 7 out of 10 primarily due to expanding operating margins and returns on equity that are outperforming 89% of global diversified media companies.

Marathon Petroleum

Loeb sold his 3.5 million shares of Marathon Petroleum for an average price of $67.67 per share, trimming the equity portfolio 1.96%.

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Marathon Petroleum refines, markets and retails petroleum products throughout the U.S. GuruFocus ranks the company's financial strength and profitability 6 out of 10: although the company's Piotroski F-score ranks a strong 8 out of 9, the three-year revenue decline rate of 5% outperforms just 60% of global competitors. Other warning signs include increasing long-term debt and operating loss over the past three years.

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See also

Loeb's other major sells for the quarter included position reductions in Baxter International Inc. (BAX), PayPal Holdings Inc. (PYPL), Dover Corp. (DOV) and major Warren Buffett (Trades, Portfolio) holding American Express Co. (AXP). These transactions reduced the equity portfolio 11.06% in the aggregate.

Disclosure: No positions.

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This article first appeared on GuruFocus.