Wednesday, July 26, 2017

Third Point Q2 Letter: Re-enters Alibaba, Adds BlackRock Stake

Dan Loeb's hedge fund firm Third Point was up 4.6% for the second quarter and is up 10.7% for the year.  Third Point's second quarter letter reveals they've re-entered Alibaba (BABA).  They feel now is the time to re-enter due to the company's launch of personalized advertising, new ad tech for brand advertisers, as well as revenue potential from higher ad loads, among other reasons.

Backing out net cash and some other stakes, Loeb's firm feels Alibaba's core business alone is worth $121 per share (around 15x their 2019 EPS estimate of $8.20) with earnings growing 30% year-on-year.  They feel BABA can close the valuation gap with competitors like Tencent, which trades at 32x consensus 2018 EPS.

Third Point also reveals a stake in BlackRock (BLK) in the letter.  Rather than simply being an asset manager. they feel it's "becoming a network or index-like business, with earnings power driven by ETFs (via iShares) and data & analytic services (via Aladdin).  They point out they're basically oligopoly businesses.

Also, a few months ago we highlighted how this hedge fund has gone activist on Nestle and we posted Third Point's letter on Nestle here.

Embedded below is Third Point's Q2 2017 letter:

You can download a .pdf copy here.

For other recent hedge fund letters, you can also read Greenlight Capital's Q2 letter here.

Howard Marks' Cautionary New Memo on Cycles: "There They Go Again... Again"

Oaktree Capital Chairman Howard Marks is out with a new memo.  It's entitled "There They Go Again... Again."  He notes that, "Some of the memos I'm happiest about having written came at times when bullish trends went too far, risk aversion disappeared and bubbles inflated."  He feels that it's time again for a cautionary memo.

His latest writings delve into the topics of cycles and what seeds are needed for the foundation of a bull market, boom or bubble.  He outlines how investors gradually shift from a benign environment, to one with more money than ideas, to suspension of disbelief, to rejection of valuation norms, to eventually the almighty "fear of missing out."

While Marks says many of the ingredients are in play today, a few usual ingredients are notably missing.  He also writes that, "Most people can't think of what might cause trouble anytime soon.  But it's precisely when people can't see what it is that could make things turn down that risk is highest, since they tend not to price in risks they can't see."

This is an excellent memo and worth reading in its entirety.

Embedded below is Oaktree Capital and Howard Marks' new memo: There They Go Again... Again:

You can download a .pdf copy here.

For more letters from prominent investors, we've recently posted Third Point's Q2 letter and Greenlight Capital's Q2 letter.

What We're Reading ~ 7/26/17

The most important moat [Base Hit Investing]

Technical Analysis of Financial Markets [John Murphy]

Ferrari (RACE) sells veblen goods, not cars [Intrinsic Investing]

Buy time, they're not making any more of it [Abnormal Returns]

On reinvestment moats and Zooplus [Connor Leonard]

On perceived versus real risk tolerance [Aleph Blog]

On why it's so hard to be a contrarian investor [Medium]

A Hermes Birkin bag generates higher return than stocks? [BagHunter]

Snapchat (SNAP) isn't a social network, it's a toy [Vanity Fair]

Can anyone bury Bloomberg? [Institutional Investor]