Third Point's Q3 Letter: New Dover Position

Dan Loeb's hedge fund firm Third Point has released its third quarter letter.  Thus far for 2017, they're up 14.5% in their Offshore Fund and up 23% in their Ultra Fund.

While they feel earnings multiples are high by historical standards, they think earnings growth and low interest rates combine to make an environment ripe for higher valuations anyways.

The biggest risk they see currently?  A recession.  However, they feel the risk is low as economic growth rates are high.

Third Point's New Position in Dover (DOV)

During the third quarter, Third Point initiated a brand new position in Dover (DOV), an industrial conglomerate.  They've engaged management and think there's a 3 main areas for value creation: separate the energy segment, address the underearning core industrial portfolio, and optimize capital allocation.

Their letter also gives updates on DowDuPont, Honeywell (HON), as well as their activist position in Nestle.

Embedded below is Third Point's Q3 letter:



You can download a .pdf copy here.

Third Point's Q1 Letter: Playing Merger Arb & Pro Forma Situations

Dan Loeb's Third Point is out with its first quarter letter.  In it, they talk about how hedge funds have seen a lot of carnage as of late.

Specifically, they see the decimation in merger arbitrage land as an opportunity, writing, "many of these combined businesses should compound in value thanks to the benefit of synergies, modest financial leverage, and strong or improved management teams that have a history of successful capital allocation."

Their letter outlines their thesis on the following plays:

- Dow / DuPont
- ABInBev / SAB Miller / Molson Coors
- Time Warner Cable / Charter Communications
- Chubb / ACE
- Danaher

Embedded below is Third Point's Q1 letter:

Third Point on Dow Chemical, IHI Corp & SoftBank: Q1 Letter

Daniel Loeb's hedge fund firm Third Point is out with its first quarter letter to investors.  In it,they detail their position in Dow Chemical (DOW) in-depth.  Instead of summarizing it, we'll let you read the full pitch in the letter below.  They also touch on a Japanese midcap: IHI Corp.

Additionally, Third Point updates its stake on Softbank.  They feel the decline in shares this year was unwarranted and write,

"SoftBank is witnessing substantial growth in underlying asset value, de-levering via the Yahoo! Japan transaction, and poised to drive further de-levering and free cash flow growth in SoftBank Mobile.  It currently trades at a 23% NAV discount to consensus estimates of value.  Alternatively, valuing SoftBank Mobile on a P/FCF methodology suggests SoftBank is trading at a 45% discount.  The discrepancy lies in the fact that the EV/EBITDA approach understates SoftBank Mobile's high free cash flow conversion and low cost of capital.  These discounts are clearly unwarranted.  We anticipate SoftBank's NAV will post continued growth and shrink this discount as management's strategy comes into further focus and transparency around underlying assets (particularly Alibaba) improves."

Embedded below is Third Point's Q1 letter:




You can download a .pdf copy here.

What We're Reading ~ Analytical Links 1/29/13

On position sizing in long/short equity hedge funds [Aleph Blog]

Report on measuring a company's moat [Credit Suisse]

How to read a 10-K like Warren Buffett [CNBC]

The myth of maximizing shareholder value [Naked Capitalism]

The second most expensive stock market in the world [John Mauldin]

A look at Post Holdings [Brooklyn Investor]

Dow Chemical is no bargain [Capital Observer]

A long pitch on SSD makers [Minyanville]

Sprint met with US government re: possible T-Mobile deal, Justice Dept skeptical [WSJ]

How Vietnam became a coffee giant [BBC]

5 takeaways from the emerging markets rout of 2014 [WSJ]

Visa Europe says end of physical currency a 'reality' [Telegraph]

Apple making a move into mobile payments? [WSJ]

Google and Samsung reach global patent license deal [GigaOm]

Third Point Q4 Letter: New Positions in Dow Chemical & T-Mobile

Dan Loeb's Third Point Offshore Fund is out with its fourth quarter 2013 letter.  In it, they reveal performance of 25.2% for the year.

Third Point's Q4 letter outlines their thesis on Dow Chemical (DOW), now their largest position.  They want the company to look into potentially spinning off its petrochemical business and to return capital to shareholders via buyback.

They also detail their thoughts on Ally Financial, a position they've been involved with since 2011 via various plays in the capital structure.  They look for the company to complete an IPO after undergoing a massive restructuring.

Lastly, the hedge fund highlights their thesis on Softbank, Sony (SNE) and T-Mobile (TMUS).  The latter is a brand new position they established during the company's secondary offering at $25 in November.

Embedded below is Third Point's year-end investor letter:




For more on this hedgie, we've also highlighted Third Point's other activity here.

Whitney Tilson's Hedge Fund T2 Partners: Annual Letter

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners has put out their annual letter. In this latest letter to investors, they address the macro environment, talk about how their portfolio fared, and discuss their largest long and short positions.

Since hedge funds often do not reveal their short positions, we wanted to make special note of this glimpse we get into their short book. We had previously seen some of their shorts, but the list below is more expansive. Whitney Tilson and many other prominent hedge fund managers will be presenting investment ideas at the Value Investing Congress May 4th & 5th in Pasadena and we highly recommend attending. We've secured a discount to the event for our readers so make sure to use discount code: P10MF5.

T2 Partners' ten largest short positions heading into this year were (in alphabetical order):

1. Capital One (COF): In T2's letter, Tilson and Tongue mention that this is a hedge to their long of American Express (AXP).

2. Dow Chemical (DOW): This is a hedge to their long position in Huntsman (HUN).

3. Homebuilders (various plus an ETF): T2 Partners has been bearish on the housing market.

4. InterOil (IOC): Tilson has been bearish on this name for a while and argues that all their press releases (there's a lot of them) have artificially lifted the stock higher on no substantial news.

5. iShares Barclays 20+ Year Treasury Bond (TLT): We now see yet another hedge fund shorting long-term treasuries as a bet on rising interest rates, inflation, etc. This was one of Howard Marks' main recommendations in his recent plays for inflation. One of the original hedgies Michael Steinhardt himself has called treasuries foolish. Legendary investor and ex-Quantum fund manager Jim Rogers shares this sentiment and dislikes treasuries. Hedge fund legend Julian Robertson is betting on higher interest rates and is doing so via constant maturity swaps (CMS).

6. iShares Dow Jones Transportation Average (IYT): This appears to be another macro hedge.

7. Moody's (MCO): T2 Partners joins hedge fund colleague David Einhorn & Greenlight Capital who are also short MCO. In Einhorn's recent investor letter, he mentioned how this short position has been causing them pain, but they still feel Moody's faces headwinds.

8. Netflix (NFLX): Shares are up sharply on this name after they just reported earnings. This stock had been heavily shorted by hedge funds and looks to be causing everyone on the short side some pain.

9. Retail HOLDRs (RTH): This seems to be another macro hedge/short as they wager against consumer spending, and in particular discretionary spending. This gives them exposure to a basket of names.

10. Vistaprint (VPRT): This short position is intriguing because we've known many other hedge fund managers to be short. However, a few prominent hedgies also have long positions, so it's interesting to to note the difference in opinion. When we looked at the portfolio of Stephen Mandel's Lone Pine Capital, we noticed they had a large Vistaprint stake. Additionally, fellow hedgie Matt Iorio and his White Elm Capital had been long. We'll have to see which side of hedge fund land wins this battle.


Moving on, we also got to see their twelve largest long positions as of 12/31/09 and they are as follows:

1. General Growth Properties (GGWPQ): We recently covered their thoughts on GGWPQ.

2. Berkshire Hathaway (BRK.A/BRK.B): Tilson was recently out talking about how he thinks Berkshire is undervalued and how it could be added to the S&P 500. His latter point just recently came to fruition as BRK.B replaced Burlington Northern in the index. This creates a ton of buyers as index funds will need to buy $38 billion worth of BRK.B, around 23% of the total shares outstanding.

3. Iridium stock/warrants: They note that it is growing very rapidly and has taken market share from competitors.

4. Microsoft (MSFT): They think this name is cheap, safe, and rapidly growing.

5. American Express (AXP): While they have been trimming their long position as it has risen, they deem it currently at 'reasonable valuation' and continue to hold.

6. Huntsman (HUN): They believe the company is now well poised to ride out the economic crisis after their net debt declined by almost $3 billion and they have no more meaningful maturities until 2012.

7. Pfizer (PFE): We've started to see a lot of smart investors pile into this name. Fairholme Fund manager Bruce Berkowitz has a large Pfizer position. Also, we recently noted that Pfizer was the second most popular stock held by hedge funds. Berkowitz is certainly not alone in his fondness for this name. John Griffin's hedge fund Blue Ridge Capital had Pfizer as their third largest US equity holding when last we checked.

8. dELiA*s (DLIA): T2 Partners likes this name because it has a low probability of permanent loss of capital and a good chance of making multiples on their money.

9. Sears Canada (TSE: SCC): Tilson notes, "This stock trades at 4.2x trailing EV/EBITDA, around half the valuation of comparable retailers."

10. Yahoo! (YHOO): This is definitely a contrarian play in the tech space as most of the hedge funds we follow are long Google (GOOG). T2 believes that Yahoo's intrinsic value is nearly double its current price.

11. Fairfax Financial (FRFHF): They feel this is a "diverse collection of high-quality insurance businesses at a discount to intrinsic value."

12. Wendy's Arby's Group (WEN): They are confident Nelson Peltz and his team can turn Wendy's around just like they did with Arby's.


So, there you have their long and short positions. Embedded below is hedge fund T2 Partners' annual letter in its entirety (RSS & Email readers will need to come to the site to see it):





For more great investment ideas from hedge fund managers, make sure to check out the Value Investing Congress May 4th & 5th in Pasadena. We've secured a discount to the event for our readers so make sure to use discount code: P10MF5.

For more insight from Tilson & T2, head to our coverage of hedge fund T2 Partners.

Technical Analysis: S&P 500, Dow, Nasdaq & Gold

Marketclub just pumped out a bunch of technical analysis videos on the major indices as well as everyone's most watched precious metal. If you want to see how the charts are shaping up, Adam walks through the technical patterns in each video. He takes a step back and gives a broad overview as to what he's seeing in the markets and looks at formations, fibonacci retracements, MACD, and other indicators. Here's the videos:

- Technical analysis on the S&P 500

- Checking out the Nasdaq & Dow charts

- Gold has been on a rampage, check out the latest chart


Great overview in each of the vids. Enjoy and let us know what you're seeing on a technical level too.

Another Dow Jones Long Term Chart

Courtesy of Jesse's.we see yet another long term Dow Jones chart. But, this one has some ominous implications. After all, it is Friday the 13th.

(click to enlarge)

Dow Performance After Elections

A nice quick Bloomberg chart comparing the Dow Jones performance after the elections of Barack Obama and Franklin D. Roosevelt. It will be interesting to see how the market performs after March, as we have yet to see any positive sort of rally after the Obama inauguration.

(click to enlarge)

100 Year Chart of the Dow

Barry Ritholtz has got another great chart up depicting the 100 Year Dow. Take a gander:

(click to enlarge)

Dow Jones

Dow Jones Industrial Average Performance

• 5 days: -18.16%
• 1 month: -23.61%
• 6 months: -31.52%
• Year-to-date: -35.32%

Straight up carnage.

And, as Agoracom notes, Gold absolutely spiked in the last hour today. People who are scared flock to gold during market extremes. Fear is here for sure.

(click to enlarge)

And how about the volatility index (VIX)? Ridiculously high at 64. The highest we've seen in I don't even know how long. But, as we've seen, the VIX could still certainly go higher and the markets lower. But, I'm going to say that this looks like a place to start positions on the long side. Make sure you're always hedged and you're not trading large positions; keep it small. This is starting to get ridiculous. I fully anticipate the deleveraging and hedge fund redemptions/liquidations to continue. But, as we all know, there's no way to pick the exact bottom. I will happily pick up some of their belongings at fire-sale prices and will continue to reserve ample dry powder should more opportunities arise.

Dow Jones Lingering Around 5 Year Trend Line

Over on his site, Stewie has a great 5 year chart of the Dow Jones up. As he illustrates, we're right on the cusp of breaking convincingly through a major long-term trendline. Stochastics and various other signals are pointing to oversold so we should see some sort of a bounce here. But, still, scary stuff. I'll let the chart do the rest of the talking:


Then, combine that with the fact that we are seeing the largest net short position in the s&p in some time. This chart, courtesy of Bespoke Investment Group, illustrates that:


Fun times in the markets!