- By Graham Griffin
Daniel Loeb (Trades, Portfolio) has revealed his portfolio for the third quarter. During the quarter, the guru added 20 new holdings, including PG&E Corp. (NYSE:PCG) and Microsoft Corp. (NASDAQ:MSFT). He also sold out of many holdings, including Baxter International Inc. (NYSE:BAX), Raytheon Technologies Corp. (NYSE:RTX) and Far Point Acquisition Corp. (NYSE:FPAC).
Loeb founded Third Point LLC in 1995 and leads the firm's research activities, portfolio and risk management. Loeb and his firm focus on activist investing and follow an event-driven, value-orientated investment style. He looks for situations in which a catalyst will unlock value and pushes for change with his public letters.
At the end of the quarter, Loeb's portfolio contained 47 stocks, with 20 new holdings. Top holdings for the portfolio include PG&E, Alibaba Group Holding Ltd. (NYSE:BABA), The Walt Disney Co. (NYSE:DIS), Danaher Corp. (NYSE:DHR) and Amazon.com Inc. (NASDAQ:AMZN).
By weight, the top three sectors represented are consumer cyclical (25.48%), technology (22.43%) and communication services (15.75%).
Loeb established a new largest holding during the quarter with his purchase of PG&E for the first time since 2017. The guru purchased 84.93 million shares, which traded for an average price of $9.27 during the quarter. Overall, the purchase had an 8.01% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 23.87%.
PG&E is a holding company whose main subsidiary is Pacific Gas and Electric, a regulated utility operating in Central and Northern California that serves 5.3 million electricity customers and 4.4 million gas customers in 47 of the state's 58 counties. PG&E operated under bankruptcy court supervision between January 2019 and June 2020.
On Nov. 17, the stock traded at $11.90 per share with a market cap of $23.62 billion. The GF Value Line shows that the stock is trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 8 out of 10. There are currently seven severe warning signs issued, including declining revenue per share and new long-term debt. Return on invested capital is currently less than the weighted average cost of capital, which will hurt value as the company grows.
Loeb's largest sale of the quarter saw Baxter International cut entirely from the portfolio. The holding had been reduced consistently throughout the year prior to Loeb selling the remaining 4 million shares. The shares traded at an average price of $84.14 during the quarter. The sale represented a -4.73% impact on the equity portfolio and GuruFocus estimates the total gain on the holding at 88.29%.
Baxter manufactures medical products across seven major reported business segments. The renal segment includes peritoneal dialysis and hemodialysis products for chronically ill patients, while its acute therapies segment offers kidney or other organ support tools in intensive care situations. The medication delivery, pharmaceuticals, advanced surgery and contract manufacturing segments round out the remaining sales.
As of Nov. 17, the stock was trading at $80.45 per share with a market cap of $41.16 billion. The GF Value Line gives the stock a fair value rating.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 3 out of 10. The cash-to-debt ratio of 0.63 ranks the company lower than 71.87% of the industry. The operating margin and net margin percentages rank well, placing the company in the top half of the industry.
Raytheon was also cut from the portfolio after being boosted in the second quarter of this year. The guru sold all 5.26 million shares. The stock traded at an average price of $60.69 per share during the quarter. Overall, the sale had a -4.46% impact on the equity portfolio and GuruFocus estimates the total loss of the holding at 14.65%
Raytheon Technologies is a diversified aerospace and defense industrial company formed from the merger of United Technologies and Raytheon, with roughly equal exposure as a supplier to the commercial aerospace manufactures and to the defense market as a prime and subprime contractor. The company operates in four segments: Pratt & Whitney, Collins Aerospace, space and airborne systems and integrated defense and missile systems.
Nov. 17 saw the stock trading at $68.97 per share with a market cap of $104.69 billion. The GF Value Line suggests that the stock is trading at a fairly valued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 6 out of 10. There are currently four severe warning signs issued, including declining operating margin percentage and assets growing faster than revenue. Debt has increased over the last several years, but the company has managed to increase free cash flow to easily cover dividend payouts.
Loeb's second-largest new buy for the quarter saw Microsoft added back into the portfolio for the first time since last year. The guru purchased 1.10 million shares. The stock traded at an average price of $210.04 during the quarter. Overall, the purchase had a 2.32% impact on the portfolio and GuruFocus estimates the total gain at 6.94%.
Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three overarching segments: productivity and business processes, intelligent cloud and more personal computing. Through acquisitions, Microsoft owns Xamarin, LinkedIn and GitHub. It reports revenue in product and service and other revenue on its income statement.
On Nov. 17, the stock was trading at $214.51 per share with a market cap of $1.62 trillion. The GF Value Line suggests that the stock is significantly overvalued.
GuruFocus gives the company a financial strength rating of 7 out 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. There is one severe warning sign issued for assets growing faster than revenue. The stellar profitability rank is propper up by operating and net margin percentages that push the company above 96% of the industry. The company has managed to slowly decrease debt while maintaining cash levels over the last four years.
Far Point Acquisition
The third-largest sale came from Far Point Acquisition, which had remained a consistent holding in the portfolio since 2018. Loeb sold the 15.69 million shares he had originally purchased. The shares sold at an average price of $10.32 during the quarter. Overall, the sale represented a -2.21% impact on the portfolio and GuruFocus estimates the total gain of the holding at 5.85%.
Far Point Acquisition is a blank check company with the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses in the financial technology industry. The company completed its initial public offering in 2018 after raising $632 million from investors.
The company announced in August of this year that it would hold a special meeting to vote on the proposed business combination transaction with Global Blue Group AG (NYSE:GB). All stockholders were required to complete the procedures for electing to redeem their public shares prior to the meeting.
On Nov. 17, the stock was trading at $10.69 per share with a market cap of $845.18 million.
Disclosure: Author owns no stocks mentioned.
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This article first appeared on GuruFocus.