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Learn from the best. A legendary investor explains why he invests in these three unusual companies

Jamie Cameron
30. 10. 2022
6 min read

The eyes of many investors around the world are watching Dan Loeb and his world-famous fund's moves. This time, he delighted them by pronouncing a few names of companies that he finds extremely attractive. We will feature three of them in this article.

Dan Loeb heads the legendary Third Point Fund

Dan Loeb, founder and CEO of Third Point Funds, has built a reputation as an active investor and aggressive market player - and that strategy has worked for him. Since launching his fund in 1995, Loeb has built it into a Wall Street giant, managing approximately $16 billion in assets. So he certainly has a track record that can speak for him.

While Loeb is aggressive in his investment tactics, he also keeps a firm grip on reality, and in his recent letter to clients, he clearly notes how economic conditions have deteriorated since the beginning of the summer. Inflation in the US remains high and the Consumer Price Index is rising month-on-month, while Europe is drowning in its own problems.

I discuss the dangers Loeb notes (and what he advises investors to do) in this article: Get rid of these stocks before it's too late, says the world-famous billionaire manager. He pointed to specific names

However, even in today's volatile environment, Loeb finds opportunities and notes: "We see very attractive valuations. The situation is not entirely good, but if we assume that a complete financial Armageddon will not come, we see no reason not to open positions... "

CPI (Consumer Price Index) is at a pretty significant high. Source

Dan Loeb's three favorite stocks (and, of course, Third Point) may be a bit surprising to some and not exactly common. Still, they make perfect sense.

Lead $OVV+1.9%

Ovintiv is a major player in hydrocarbon exploration and production with assets in Texas' Permian Basin, Oklahoma's Anadarko fields and the Montney formation on the British Columbia-Alberta border. Ovintiv, with a market capitalization of $13 billion, has benefited greatly from the current inflationary environment, particularly rising oil and gas prices, and has posted 8 consecutive quarters of growing revenues.

Seeing this much growth this year is more or less reserved really only for energy companies

Along with strong earnings, Ovintiv has also significantly outperformed the overall markets - where we've seen a general decline this year, OVV stock is up 59% year-to-date.

Ovintiv will report its Q3 results in early November, but a look at the company's Q2 financial report gives a good picture of its current strength. Q2 revenue was $4.04 billion and net income was reported at $1.36 billion. Management reported that the company achieved its highest quarterly cash flow and free cash flow in more than 10 years.

Dan Loeb first bought shares of OVV in the first quarter of this year. In the second quarter, he increased his stake by 172% and bought 3.87 million shares. His stake in the company as of August 15 totals 6.12 million shares and is worth over $323 million.

Colgate-Palmolive Co $CL-1.6%

Another not-so-common company is Colgate-Palmolive. Daniel Loeb's Third Point has built a significant position in the toothpaste maker and sees opportunity and value in a potential spinoff of its Hill's Pet Nutrition arm and other brands, the activist investor said in a letter.

Here's where it gets red

The letter to investors did not disclose the size of Third Point's stake, but cited several reasons for investing in the consumer goods company, including its pricing power in an inflationary environment and strength in pet food.

Loeb called the pet segment one of the "most exciting" areas in the consumer products industry and said the venture could be worth roughly $20 billion if it were a standalone company.

"There is significant value in Hill's Pet Nutrition business, which is part of the company and which we believe would achieve a multiple if separated from Colgate's consumer assets," the letter said.

Given the sharp rise in inflation, Loeb said the investment in Colgate makes sense because the business is "defensive" and has the ability to raise prices.

"We see the stock appreciating at a rate in the mid to high teens over the next few years, driven only by earnings growth and a nearly 3% dividend," Loeb wrote, adding that any strategic actions around Hill's or the consumer healthcare sector "could substantially increase our expected yield."

While positive about Colgate's portfolio, Loeb noted that earnings growth has been disappointing and that the stock price has underperformed. He urged the board to take action at a time of increased activity in the consumer goods and healthcare sectors.

Sema4 Holdings $SMFR+26.8%

Last on this se list is an even lesser known company. Sema4 Holdings Corp is in the business of analyzing data to improve the diagnosis, treatment and prevention of disease. It's a really new company. It was only founded in 2020. Modern med science can do wonders and one of the most important points that help it do that is data and its accuracy. "Precision" medicine and population health platform services are made possible by big data and machine learning, which are experiencing a general boom.

But it has sprouted up in an absolutely disgusting way

Dan Loeb's Third Point added the company to its portfolio during the third quarter of 2021 and holds 2.795 million shares. During the most recent quarter, it increased its stake to 5.54 million shares. So, it looks like Loeb and company are still going strong and increasing the stake at a fractional price. The company announced that the failure to achieve Q2 earnings along with management changes and restructuring was to blame for the problems.

However, it can be assumed that this could be one of the legendary manager's riskier bets.

Who is Dan Loeb?

Loeb is a big fan of activist investing. Third Point then applies an event-driven, value-oriented investment style, seeking to identify situations that could catalyze growth. The hedge fund had $16 billion in assets under management at the end of the month. Third Point's activist investment approach has produced good results in the past. Its flagship product, the Third Point Offshore Fund, has returned 13.7% annually since its inception in December 1996. Well say... who among you has that? 😛

https://www.youtube.com/watch?v=9QweTNq2tOM

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Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and a few other analyses. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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