"Tracking Dan Loeb’s Third Point Portfolio – Q1 2018 Update"
"Dan Loeb's 13F portfolio value decreased from $13.86B to $13.32B this quarter. The number of positions decreased from 44 to 40.Third Point added United Technologies while reducing BlackRock and Alibaba Group Holdings.The top three positions are Baxter International, DowDuPont, and United Technologies. Together, they are at ~31% of the portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Dan Loeb’s 13F stock portfolio on a quarterly basis. It is based on Third Point’s regulatory  filed on 05/15/2018. Please visit our  to get an idea of his investment philosophy and our  for the fund’s moves during Q4 2017.The 13F portfolio is very concentrated with the top three holdings accounting for ~31% of the entire portfolio. Recent 13F reports show around 40 long positions. This quarter, Loeb’s portfolio value decreased ~4% from $13.86B to $13.32B. The number of holdings decreased from 44 to 40. The largest five individual stock positions are Baxter International, DowDuPont, United Technologies, Alibaba Group Holdings, and Facebook.Per their Q1 2018 investor letter, Third Point lost 0.6% in Q1 2018 compared to a loss of 0.8% for the S&P 500 Index. Annualized returns since December 1996 inception are at ~15.6% compared to ~8% for the S&P 500 Index. In addition to partner stakes, Third Point also invests the float of Third Point Reinsurance (TPRE).To know more about Dan Loeb's Third Point, check-out his . His activist investing style is covered in the book "".Note 1: Third Point reduced their net long-exposure by ~20% during the quarter. Also, the short book was enhanced to ~25%. Total AUM is at $17.7B.Note 2: Third Point has a huge $3.5B investment (40M shares including options) in Nestle (NSRGY). It is not reported in the 13F as it is not a 13F security.New Stakes:United Technologies (UTX): UTX is large (top three) 6.71% of the portfolio position established this quarter at prices between $122 and $138 and the stock currently trades at $128. For investors attempting to follow Loeb, UTX is a good option to consider for further research.Note: United Technologies is an activist stake. Third Point is pursuing a three-way split of the business.Wynn Resorts (WYNN), PagSeguro Digital (PAGS), Electronic Arts (EA), and Marathon Petroleum (MPC): The 2.10% WYNN stake was purchased at prices between $162 and $201 and it is now at $194. PAGS is a 1.31% portfolio stake established at prices between $27 and $39 and the stock currently trades at $31.98. The ~1% EA position was purchased at prices between $105 and $129 and it is now above that range at ~$133. MPC is a ~1% stake established at prices between $63 and $74 and the stock is currently well above that range at $78.85.Adobe Systems (ADBE), Black Knight Inc. (BKI), Salesforce.com (CRM), Microsoft Corp. (MSFT), PBF Energy (PBF), and Mercadolibre Inc. (MELI): These are minutely small (less than ~0.5% of the portfolio each) positions established this quarter.Stake Disposals:Aetna Inc. (AET): AET was a medium-sized 2.41% portfolio position purchased last quarter at prices between $151 and $183. It was disposed this quarter at prices between $168 and $194. The stock is now at ~$178.Note: In December CVS Health agreed to acquire Aetna in a cash-and-stock deal ($145 per share cash and 0.8378 CVS shares for each share held).FMC Corp (FMC): FMC was a 1.50% position established in Q2 2017 at prices between $70 and $77 and increased by ~10% the following quarter. The stake was disposed this quarter at prices between $73 and $98. It is now at $91.33.NXP Semiconductors NV (NXPI): NXPI was a 1.82% of the portfolio stake purchased in Q2 2017 at prices between $103 and $110. There was a ~20% reduction last quarter at prices between $113 and $118 and the elimination this quarter was at prices between $115 and $126. The stock is now at ~$115.Note: In October 2016, Qualcomm (QCOM) agreed to acquire NXP Semiconductors for $110 per share cash.  In November last year, Broadcom (AVGO) offered to acquire Qualcomm for $70 per share ($60 in cash) – the offer was independent of whether the NXP deal goes through.  In February this year, the deal was sweetened to $82 per share. Qualcomm rejected the modified offer and turned around to offer $127.50 for NXP Semiconductors. They also gained the backing of Elliott Management that had previously opposed the deal.Altaba Inc. (AABA), Dell Technologies (DVMT), Dentsply Sirona (XRAY), General Dynamics (GD), Honeywell International (HON), MGM Resorts International (MGM), Macerich Company (MAC), Parsley Energy (PE), Pinnacle Foods Inc. (PF), PG&E Corp. (PCG), RSP Permian (RSPP), and Southwestern Energy (SWN): These small positions (less than ~1.5% of the portfolio each) were disposed this quarter.Stake Increases:Facebook Inc. (FB): FB is a large 4.80% of the portfolio stake established in Q2 2016 at prices between $109 and $121 and increased by ~45% the following quarter at prices between $114 and $131. Q4 2016 saw the position reduced by ~36% at prices between $115 and $133 and that was followed with a ~14% trimming the following quarter at prices between $117 and $143. Q2 2017 saw an about turn: ~17% stake increase at prices between $139 and $155 and that was followed with a similar increase this quarter at prices between $152 and $193. The stock is now at ~$185.Dover Corp. (DOV): The 2.89% DOV stake saw a 140% increase this quarter at prices between $77 and $88. The stock currently trades at $80.39.Note 1: The prices quoted above are adjusted to reflect the spinoff of Apergy (APY) that closed earlier this month.Note 2: Dover Corp is an activist stake. Third Point’s Q1 2018 letter discussed the position: a) spin-off of energy business Apergy should reduce volatility, b) cash-EPS reporting change should show strong cash generation, and c) Transition to new CEO Richard Tobin should be a positive – strong background operating industrial assets. They believe Dover is trading at a ~30% discount to peers.Lennar Corp. (LEN): The 2.78% LEN stake was established last quarter at prices between $52.75 and $64 and increased by ~18% this quarter at prices between $56.50 and $72. It currently trades just below those ranges at $52.27. For investors attempting to follow Loeb, Lennar is a good option to consider for further research.Note: Third Point believes the 6x pro forma earnings they paid was a bargain considering that Lennar is the best homebuilder managed by the best veteran team.Worldpay Inc. (WP) previously Vantiv (VNTV): WP is a 2.53% portfolio stake built over the last two quarters at prices between $60 and $76. The stock currently trades well above that range at $82.12. There was a minor ~3% increase this quarter.Vulcan Materials (VMC): The 2.52% VMC stake was purchased in Q2 2017 at prices between $117 and $134 and increased by ~47% the following quarter at prices between $113 and $130. The stock is now at ~$130. There was a ~11% increase last quarter and that was followed with a similar increase this quarter.Anthem Inc. (ANTM): ANTM is a small ~1.3% of the portfolio stake. The position saw a stake doubling this quarter at prices between $216 and $258. The stock currently trades at ~$234.Monsanto Company (MON): The ~1% MON position saw a ~500% increase this quarter at prices between $117 and $124 and it is now at ~$126.iShares 1-3 year treasury bond: This is a minutely small 0.02% portfolio position that was increased this quarter.Stake Decreases:DowDuPont (DWDP): DWDP is currently Third Point’s second-largest individual stock position at 6.73% of the portfolio. The original Dow Chemical stake was established in Q4 2013 at prices between $38 and $45. In Q2 & Q3 2014, the position was increased by just over 220% at prices between $47 and $55. Q4 2014 saw an about-turn as ~24% of the position was disposed at prices between $43 and $53. Q2 & Q3 2016 saw another ~40% reduction at prices between $49 and $59. Since then, the position has been reduced by ~30% thru minor trimming in most quarters. The stock currently trades at $68.63.Note 1: Third Point’s Q1 2018 letter discussed the position: Materials, Specialty & Ag Co future spins has strong parallels to LyondellBasell (LYB), 3M (MMM), and Monsanto (MON) respectively - 2020 estimates are identical but valuation is ~40% lower. They expect the valuation gap ($92 FVE) to narrow in the next twelve months.Note 2: DowDuPont is an activist stake. In December 2015, Dow and DuPont announced a merger of equals and that transaction closed last September forming the new entity DowDuPont. The plan was to then split into three separate businesses. In May last year, Third Point suggested an : their main contention was that carve-outs of DOW and DD had performed very well in the past (Example Trinseo & Olin from Dow and Axalta & Chemours from DuPont) and so a similar strategy would be more appropriate than a three-way split. In mid-September, partly in response, DowDuPont announced certain adjustments to the original three-way split.Alibaba Group Holdings (BABA): BABA is a top five 5.51% position established in Q2 2017 at prices between $107 and $144 and increased by ~47% in the following quarter at prices between $141 and $180. The stock currently trades at ~$198. There was a ~9% trimming last quarter and that was followed with a one-third reduction this quarter at prices between $174 and $205. Third Point is realizing gains.Note: Alibaba has seen several previous roundtrips in the portfolio over the years.Alphabet Inc. (GOOG): GOOG is a large 4.48% stake established in Q1 2016 at prices between $678 and $765. It was reduced by ~43% in the following quarter at prices between $668 and $767. Q3 2016 saw a ~38% increase at prices between $692 and $787 while there was a ~23% selling the following quarter at prices between $736 and $813. Q2 2017 saw a ~26% increase at prices between $823 and $984 while the following quarter there was a ~45% reduction at prices between $899 and $980. Last quarter saw a huge ~120% stake increase at prices between $952 and $1077. There was a ~16% selling this quarter at prices between $1001 and $1176. The stock is currently at ~$1080.Note: GOOG has seen a previous roundtrip in the portfolio. A fairly large 3.44% of portfolio stake was established in Q3 2013 at prices between $423 and $435. It was sold in Q2 2014 at prices between $510 and $579.BlackRock Inc. (BLK): BLK is a fairly large 4.41% portfolio stake purchased in Q2 2017 at prices between $377 and $428. The position was sold down by ~30% this quarter at prices between $509 and $593. The stock is now at ~$544. Third Point is harvesting gains.Note: BlackRock was profiled in Third Point’s Q2 2017 letter. Their undervaluation thesis was based on the belief that BLK is valued as an asset manager (low margins) while their earnings power is driven by oligopoly businesses - ETFs (via iShares) and data & analytic services (via Aladdin). The stock was trading at ~$420 per share at the time.Constellation Brands (STZ): The fairly large ~4% STZ position was established in 2012. The three quarters thru Q3 2016 had seen a combined ~38% increase at prices between $135 and $168. There was another ~36% increase in Q4 2016 at prices between $145 and $171. Q2 2017 saw an about-turn: ~17% selling at prices between $161 and $194. The stock is currently at $219. There was a ~8% trimming this quarter.Intercontinental Exchange (ICE): ICE is a 2.72% portfolio stake established last quarter at prices between $65 and $72 and the stock currently trades at $72.36. There was a ~9% trimming this quarter.Danaher Corp. (DHR): The 2.39% DHR stake was established in Q3 2015 at prices between $60.90 and $71.50 and increased by two-thirds in Q1 2016 at prices between $62 and $74. It currently trades well above those ranges at $102.  There was a ~2% trimming this quarter.Note: The prices quoted above are adjusted for the Fortive (FTV) spin-off in July 2016.S&P Global (SPGI): SPGI is a ~2% position established in Q2 2016 at prices between $96 and $128. Q4 2016 saw a ~20% reduction at prices between $108 and $127 and that was followed with another ~17% selling last quarter at prices between $146 and $157. There was an about-turn last quarter: ~45% increase at prices between $155 and $173. The stock is now at ~$201. This quarter saw a ~17% selling at prices between $166 and $196.Mohawk Industries (MHK): The 1.46% MHK position was established in Q4 2014 at prices between $125 and $158 and increased by ~220% in H1 2015 at prices between $153 and $194. The five quarters thru Q3 2016 had seen a combined ~60% selling at prices between $150 and $215. There was an about-turn in Q4 2016: one-third increase at prices between $177 and $205. The pattern reversed again in Q1 2017: ~21% sold at prices between $202 and $232. The stock currently trades at $216. There was a ~11% increase last quarter while this quarter saw a ~17% reduction.Sherwin Williams (SHW): The 1.72% SHW stake was acquired in Q2 2016 at prices between $280 and $312. The following quarter saw a 25% increase at prices between $274 and $312. That was followed with another ~14% increase in Q4 2016 at prices between $241 and $278. The position saw significant selling last year: 40% reduction over the first three quarters at prices between $269 and $361. The stock is currently at ~$391. There was a ~3% trimming this quarter.Grupo Financiero Galicia SA (GGAL), Grupo Supervielle SA (SUPV), Nexa Resources (NEXA), and Pampa Energia SA (PAM): These are very small (less than ~1% of the portfolio each) stakes that saw reductions this quarter.Kept Steady:Baxter International (BAX): BAX is Loeb’s largest position at ~18% of the 13F portfolio. The stake was established in Q2 2015 and increased substantially the following quarter. There was a ~11% selling in Q1 2017 at $50.35 and another similar trimming the following quarter at $59.50. Last quarter saw another ~12% trimming at $64.23. Loeb’s cost-basis on BAX is $40.05. The stock currently trades at $72.10.Note: Third Point controls ~6.6% of the business.Netflix Inc. (NFLX): NFLX is a 4.44% portfolio position purchased last quarter at prices between $177 and $203 and it is currently well above that range at ~$332.Time Warner Inc. (TWX): The ~4% TWX stake was established in Q4 2016 at prices between $78.50 and $97 and increased by ~17% in the following quarter. Q3 2017 saw an about turn: ~27% selling at prices between $99 and $103. There was a huge ~120% stake increase last quarter at prices between $87 and $104. The stock is now at $94.74.Note: In October 2016, AT&T (T) agreed to acquire Time Warner in a cash-and-stock ($53.75 cash) deal worth $107.50 per share.Sotheby’s (BID): BID is a 2.57% of the portfolio position first purchased in Q1 2013. The bulk of the current stake was purchased in Q3 2013 at prices between $39 and $51. The stock currently trades at $55.50. Third Point’s ownership stake in BID is ~13%.Note: BID is an activist stake. Third Point has three board seats and in March 2015 Tad Smith was appointed as the CEO.Green Brick Partners (GRBK) and Kadmon Holdings (KDMN): These very small positions (less than ~1% of the portfolio each) were kept steady this quarter.Note 1: Loeb controls ~16% of Green Brick Partners (previously BioFuel Energy).Note 2: The bulk of the stake in Kadmon Holdings is from prior to its IPO in July 2016 (PE investment). The biopharma was founded in 2010 by Sam Waksal (ImClone insider trading conviction and 7-year prison term infamy, circa 2003). Loeb controls ~13% of Kadmon Holdings (KDMN).The spreadsheet below highlights changes to Loeb’s 13F stock holdings in Q1 2018:1/26/2018 –  – Said their portfolio is well positioned despite these risks: a) bets against stocks through short-selling and b) the "event-driven" nature of his investments. Closely monitoring 4 Key risks – 1. Decelerating growth: "Since growth is already at a high level, further acceleration is less likely. That means that average returns will likely be lower and volatility higher this year.", 2. Rising inflation: "Low inflation has been a critical support for the market because it has allowed the Fed to be unhurried in its rate normalization. … We are watching closely to see how a tightening labor market and recently announced wage hikes will shape the future path of inflation.", 3. Less earnings growth: "The momentum of earnings growth is at a peak and its normalization could create greater volatility compared with the tranquility of 2017.", 4. Recession: "A recession would come as a surprise to investors and would likely lead to a substantial market decline given the expansion in valuations in recent years and the concern that the Fed would not have enough ammunition to sufficiently stimulate the economy."1/22/2018 –  – Performance: 18.1% for 2017 compared to 21.8% for the S&P 500, Q4 2017 3.1% vs. 6.6% for S&P. Macro & related risks: The risks mentioned in CNBC is in the Investor Letter as well. Portfolio Update: Nestle: CEO took several steps to create shareholder value – a) commitment to reaccelerate sales growth to mid-single digits and set a formal margin target of 17.5 to 18.5%, b) CHF 20B buyback, c) plans to make portfolio adjustments of as much as 10% of sales. Mgmt. interactions well received and expects to continue. Suggestions to Nestle: 1) Clarify corporate strategy: defines “nutrition, health, and wellness” as focus but several assets are not core per this definition – brand aspiration to be “better for you” conflicts with ice-cream & frozen pizza. Also, skin-health is an outlier – acquisition seems a mistake – should be unwound, 2) Accelerate portfolio change: 3x sales price realized for confectionary business (1% of sales) was good but too little to move the needle. Other ill-fitting businesses should be sold in an accelerated fashion. Also needs to move faster into coffee, pet care, water, and nutrition – the high-growth categories they have identified. So, only very few deals. The expansion to consumer health (Atrium Innovations – Canadian vitamin maker acquisition) is confusing – management should explain the move, 3) Deploy the balance sheet: should buyback as valuation is low due to market skepticism on Nestle’s ability to reaccelerate sales growth. This should not affect deals as they can do both – below 1.0x leverage, and 4) Monetize the L’Oreal stake.Regulatory Filings thru 2/20/2018: 13G/As – 2/9 – KDMN – 10M shares – 12.6% of business, NOMD – 0, 13D/A, Form 4 – 12/8 – GRBK - ~8.1M shares – 16% of business, Form 4 – 11/17 – BID – misc."