Stocks to Watch in Dan Loeb's Portfolio
The hardest part of about being an individual investor is being an individual. But what if you had some help finding winning stocks from hedge fund manager Dan Loeb?
Loeb founded Third Point in 1995 with just $3.4 million in capital from, as he says, "five intrepid investors -- all close friends and family -- and my own nest egg." Twenty years later, Loeb's fund has generated an average annual return of 17.2%, and has grown total asset to $17.5 billion.
Today, Third Point's portfolio is filled with interesting stocks, but two have really grabbed my attention: Intrexon and eBay.
Intrexon CorporationLoeb initially invested in Intrexon in 2011 and has been adding to his position since the company went public in 2013.The holding represents 1.1% of the portfolio, or $122 million.
Intrexon is a leader in synthetic biology, which attempts to engineer living things in a way that is predictable and produces a desired outcome. A few examples include: engineering salmon to mature twice as fast, or creating apples that don't brown after they have been cut open. But this is only the tip of the iceberg. The industry is still in its infancy, and as Loeb noted in his fourth quarter 2013 letter to shareholders: "Most attractive to us is Intrexon's potential to transform multiple industries, including the health, food, and energy markets."
The potential seems limitless, but attempting to penetrate several markets is no easy feat. So, to solve this problem Intrexon has created several partnerships with companies like OvaScience to create new treatments for in vitro fertilization, or Johnson & Johnsonin an effort create new skin and hair care products.
But there are drawbacks. Anytime you are manipulating living things there are moral and health dilemmas. Moreover, this technology can be used to do incredible good, but there is also the potential for bioterrorism. The combination of factors leads to incredibility rigid regulations.
With that said, most of today's advances were originally feared. So, I am not too concerned about roadblocks, and even at a quick glance it is easy to see what Loeb likes: Intrexon is an innovator, a leader in its industry, and its business model allows for growth in several directions. These qualities give Intrexon all the making of being an interesting long-term investment.
eBay The story for eBay is much different than Intrexon, yet Loeb built a substantial position in the company during the third quarter of 2014. Today, eBay makes up 4.8% of the portfolio, and is valued at $520 million (not including $140 million of call options).
As Loeb explained in his third quarter 2014 letter to investors: "eBay's challenges were wellmapped -- including multiple years of minimal value growth, a weak execution track record, and high employee turnover." However, he added that "we sensed it had arrived at a critical inflection point and gained new focus."
That "inflection point," likely came when eBay announced that they would be spinning off PayPal last September.
Although much of the spotlight has been placed on the mobile payments company, PayPal,Loeb sees value in eBay as a stand-alone business. Loeb noted that "eBay is highly cashgenerative and has relatively limited capital needs." Loeb added that the company "has shown an interest in buying back its stock ... [and] with the split of eBay and PayPal, we believe eBay's capital return strategy will be more pronounced."
Essentially, eBay may not be the high-growth story it once was, but with PayPal out of the picture eBay's efficiency, which stems from being an e-commerce business, should allow them to return capital to shareholders at a more significant clip. In fact, based on his estimates, Loeb believes that eBay could "buy back roughly a third of its [common stock] within two and a half years."
Loeb has built his reputation as an activist investor, but he considers himself an event-driven trader; spin-offs certainly fall within this category. So, it is possible that Loeb sees eBay as a short-term investment. Whether or not this turns out to be true, eBay still has a strong market position, recognizable brand name, and 157 million active buyers, which has been steadily growing.Ultimately, I think eBay makes a compelling long-term investment regardless of Loeb's intentions.
The article Stocks to Watch in Dan Loeb's Portfolio originally appeared on Fool.com.
Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends eBay. The Motley Fool owns shares of eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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