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Daniel Loeb's Top Trades of the 4th Quarter

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Daniel Loeb (Trades, Portfolio) recently disclosed the fourth-quarter 2019 updates for Third Point LLC's equity portfolio.

Third Point is a New York-based investment firm founded by Loeb in 1995. The activist investor seeks to identify and push situations that will have a positive effect on the stocks that the firm owns, thus creating value for shareholders. More than 50% of the firm's positions are activist positions, since activism has returned more gains to Third Point since 2011.

As of the quarter's end, the equity portfolio was valued at $8.42 billion.


According to the above investment criteria, the firm made three trades during the quarter that impacted the equity portfolio by more than 3%. It sold out of its positions in Sothebys (NYSE:BID) and PayPal Holdings Inc. (NASDAQ:PYPL) and established a new holding in IAA Inc. (NYSE:IAA).


Loeb sold out of the firm's 6,661,604-share position in Sothebys, which was its sixth-largest holding in the previous quarter. The trade impacted the equity portfolio by -4.51%. Shares traded at an average price of $56.99 each during the quarter.


Sothebys is one of the world's largest brokers of luxury real estate, fine art, jewelry and collectables. The British-American multinational auction company is headquartered in New York City.

As of Feb. 14, Sothebys shares traded around $56.99 for a market cap of $2.66 billion and a price-earnings ratio of 25.67. According to the Peter Lynch chart, the stock is significantly overvalued.


Sothebys has a GuruFocus financial strength rating of 4 out of 10; its interest coverage of 4.18% and Altman-Z score of 1.8 are underperforming 67.43% of competitors. The company has seen strong revenue and net income growth in recent years and is likely to see stable price evaluations for its real estate assets over the next two years, according to data from the National Association of Realtors.


GuruFocus calculations estimate that the Sotheby's position returned a gain of 36.12% since the firm first bought shares in the first quarter of 2013.


The activist investor also exited the 2,700,000-share stake in Paypal, impacting the equity portfolio by -3.32%. During the quarter, shares traded at an average price of $104.36 apiece.


PayPal is a worldwide online payments system operator that increases the flexibility, accessibility and security of various methods of electronic transactions.

On Feb. 14, shares of PayPal traded around $120.51 for a market cap of $141.35 billion and a price-earnings ratio of 58.22. The stock may be trading above its intrinsic value, according to the Peter Lynch chart.


GuruFocus has assigned PayPal a financial strength score of 6 out of 10 and a profitability score of 8 out of 10. The interest coverage of 24.26% is low for the industry, but the Altman Z-score of 3.47 indicates that the company is not in danger of bankruptcy. PayPal has seen consistent revenue and net income growth since its initial stock listing.


According to GuruFocus calculations, the PayPal position returned 15.58% for Third Point since the firm first bought shares in the second quarter of 2018.


Loeb invested in 6,500,000 shares of IAA (Insurance Auto Auctions), which had a 3.52% impact on the equity portfolio. Shares traded at an average price of $42.22 during the quarter.


IAA sells vehicles and vehicle parts that are lightly damaged, salvaged or clear title. It holds auctions across the U.S., where it sells items ranging from motorcycles and car parts to heavy construction machinery.

On Feb. 14, shares traded around $48.73 each for a market cap of $6.51 billion and a price-earnings ratio of 33.65.

The company has a GuruFocus financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. Its interest coverage is at the bottom of the industry at 6.4%, while the Altman Z-score of 2.84 is in the gray zone.

Since its initial stock listing in 2019, the company has grown its revenue at a rate of 10.1% per year and its Ebitda at a rate of 13.5% per year. The operating margin of 22.11% is outperforming 90.15% of competitors.


IAA is relatively young as a stock listing, as it initially made its debut in the U.S. and German markets in mid-2019. It is currently in a growth and expansion phase and has visited 10 countries to scout out market potential.

Portfolio composition

The firm's top holdings are Baxter International Inc. (BAX) with 16.83% of the equity portfolio, United Technologies Corp. (UTX) with 8.97% and Campbell Soup Co. (CPB) with 8.18%.

In terms of sector weightings, the firm is most invested in health care, technology and industrials.


Disclosure: Author owns no shares in any of the stocks mentioned.

Read more here:

  • Ken Fisher's Top 4th-Quarter Buys

  • PepsiCo Posts 4th-Quarter Revenue Beat and Earnings Loss

  • 3 Undervalued 'Magic Formula' Stocks

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This article first appeared on GuruFocus.