Third Point's 2011 Letter: Rationale for Owning UniCredit, Skyworks, Abercrombie & More ~ market folly

Wednesday, March 14, 2012

Third Point's 2011 Letter: Rationale for Owning UniCredit, Skyworks, Abercrombie & More

Dan Loeb's $8.9 billion hedge fund firm Third Point is out with its year-end 2011 letter. They see the bullish ramp up of 2012 continuing but are obviously still doing work on the short side as well. Third Point writes,

"The start of this year has created one especially welcome dynamic: a fall in correlations. For the first time in nearly a year, single name stock picking is being rewarded. We have steadily increased capital invested in event-driven situations in equities, corporate credit and mortgages."

We've detailed how the hedge fund has increased exposure over the past few months.

Where Third Point is Putting Money to Work

Loeb's firm has focused on two areas recently: forced selling and hidden growth. Positions they've acquired when others have been forced sellers are Unicredit, Skyworks Solutions (SWKS), and EksportFinans.

Under the hidden growth thesis, they've invested in a long credit position in Ally Financial, as well as long equity stakes in Volkswagen and Abercrombie & Fitch (ANF). They acquired their position in Abercombie in January after shares had been cut almost in half, writing,

"A&F was attractive because we believe we paid roughly 10x cy12 EPS (ex $7 net cash) for a business that should grow earnings at a double digit rate for at least the next few years. That growth will come from recovering US profitability and from continued growth of the company's high margin online (2009-11 CAGR +38%) and international businesses (2009-11 CAGR +70%)."

The hedge fund also writes about their activist stake in Yahoo in Third Point's full 2011 letter which is embedded below (email readers click to come read it):

For more on Loeb's fund, we also recently wrote about Third Point's Technicolor stake.

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