Two Winners and One Loser in Dan Loeb's Portfolio

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Daniel Loeb, a famous hedge fund manager, has managed to deliver a 21.2% return in 2012. His three biggest positions were Yahoo! (NASDAQ: YHOO)American International Group (NYSE: AIG), and Apple (NASDAQ: AAPL). The first two positions were the two top winners in the fund, whereas Apple ranked as one of the top losers in 2012. Let’s have a look at those three stocks to see whether or not investors should follow Dan Loeb into those holdings.

Yahoo! A Past Greedy Move

In the third quarter 2012, Yahoo! was the biggest position in Dan Loeb’s portfolio. He owned more than 73 million shares in the company, accounting for 23% of his total portfolio at that time. In 2008, Microsoft offered to buy Yahoo! at $31 per share, valuing the whole company at $45 billion. However, at that time founder Jerry Yang rejected the offer, as he and Yahoo!’s board thought the offer undervalued the company. The rejection seems to have been a bad move, as Yahoo!’s share price has been fluctuating in the range of $11.30-$20 since 2009. 

More of an Opportunistic Play with Poor Corporate Governance

In May 2012, Dan Loeb issued a letter to the board of Yahoo! indicating the company’s poor corporate governance by pointing out the false credentials of its previous CEO, Scott Thompson. Dan Loeb urged the company to fire Thompson and to appoint an interim CEO. In July 2012, Yahoo! hired Marissa Mayer to replace Scott Thompson as CEO. The new CEO has acknowledged that the company was facing challenges in monetizing its mobile segment, as it had zero revenue coming from mobile advertisements. It was said that the company might focus on several other segments, including Sports, Finance, and Entertainment to drive up revenue. At the current price of $19.78 per share, Yahoo! is valued at 6x trailing P/E, but the forward P/E is high at 17.35x, indicating the expected earnings drop this year. However, Zacks ranked Yahoo! as a Buy due to 7 straight positive earnings surprises and impressive third quarter results.

Apple Continues to Drop

Apple was the third biggest position Dan Loeb was holding as of September 2012. It was also one of the top biggest losers for him. After Apple released its first quarter earnings results, investors rushed to sell its shares. The share price dropped to $450. However, the first quarter earnings results were not bad at all. It had $54.5 billion in revenue and $13.1 billion in quarterly profit. The EPS was $13.81, higher than analysts’ estimates of $13.48. In addition, Apple generated $23 billion in operating cash flow in the first quarter, bringing the total cash level to $137 billion. With the total market capitalization of $422.4 billion, Apple is valued at 8.8x forward P/E. Investors would get the forward dividend yield of 2.8% if they buy Apple at the current price.

A Value Insurance Play  

AIG was the second biggest position of Dan Loeb in the third quarter 2012. He owned 23.5 million shares, accounting for 15.2% of his total portfolio. In the last 12 months, AIG has experienced a nearly 56% gain. The global insurance giant has repaid a $182 billion funding from the US government in full. AIG has been a popular holding for several famous hedge fund managers, including George Soros, David Tepper, and Leon Cooperman. Recently, AIG has decided to focus on its core business. It sold out its 90% stake in the airplane leasing global leader for around $5.28 billion. Previously, it also sold AIA business, a big Asian life insurer and American Life Insurance Company. AIG no doubt is still the leader in the global property and casualty insurance market. It is also the biggest US life insurance and retirement service provider with more than 86 million customers worldwide. At the current trading price of $36.18 per share, AIG is valued at 9.2x forward P/E and 0.5x P/B.

Foolish Bottom Line

AIG looks cheap now. With its refocus on its core operations, the near term future looks decent, while it is valued cheaply in the market. Apple also looks cheap with its huge cash balance and a strong technology base. Both AIG and Apple are definitely value plays.  Yahoo! is more of an opportunistic play on its turnaround efforts. If it can leverage on its current customer base and its existing assets, it could deliver a decent return in the future. 

 

 


hoangquocanh has s position in Apple. The Motley Fool recommends American International Group and Apple. The Motley Fool owns shares of American International Group and Apple and has the following options: Long Jan 2014 $25 Calls on American International Group. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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