Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Daniel Loeb, founder of Third Point, LLC, is best known for his poignant letters that he sends to companies where he disagrees with their overall corporate strategy. He employs a team of analysts that are known for their painstaking attention to detail and thorough analysis. Loeb and his team are the ones that discovered former Yahoo! CEO Scott Thompson never graduated with a degree in computer science, but Yahoo! stated that he had in their SEC filings. By uncovering this fabrication, Loeb was able to get himself appointed to the company's board and bring in current CEO Marissa Mayer from Google. Yahoo! is his largest holding and has been a big winner for him.
Loeb is an aggressive fund manager. He's not passive money. He's willing to use his stakes in companies to advocate for change and he also knows when to take money off the table. He went into Herbalife in December by buying an 8.2% stake, but did sell some of his position with the stock up 18% in 2013. Loeb also sold some of his Yahoo! position and locked in profits. He's willing to trade his position by buying and selling at opportune times.
So where is Loeb investing now? We know about Yahoo! and Herbalife, but those have already made gains and I certainly don't want to get in the middle of the slugfest brewing at Herbalife between Ackman, Loeb and Icahn. The answer lies in looking at his recent 13F filings.
Virgin Media (NASDAQ: VMED) is a new position for Third Point and is now Loeb's second largest holding. Liberty Global agreed to acquire Virgin Media in February for $23.3 billion in cash and stock and the deal is expected to close in the second quarter of this year. This is likely a merger arbitrage play for Loeb. Besides Loeb, John Griffin from Blue Ridge Capital and Andreas Halvorsen's Viking Global have jumped on this trade.
European Aeronautic Defence and Space Company (EPA: EAD) is another new holding for Loeb. EADS is the manufacturer of Airbus jets. Loeb likely bought this holding after the problems with Boeing's 787 Dreamliner were announced and the aircraft was taken out of service. The 787 Dreamliner allowed Boeing to record more orders than Airbus last year. Boeing's problems are Airbus' gain. The stock is trading at a new 52-week high of 41.47, another winner for Loeb.
Loeb has 5% of his portfolio in Murphy Oil Corp. (NYSE: MUR), an oil & gas exploration and production company. Loeb stated in his quarterly letter to his investors that Murphy “had many routes to unlock talent, meaningful value, among them – and most significantly – a highly accretive spin-off of its retail business.” Since Loeb penned that letter, Murphy has announced that it will spin off Murphy USA.
The financials show Murphy Oil to be an undervalued situation. The company has a forward P/E of 9.77 and a PEG ratio of 0.94. The return on equity is an impressive 10.88% and the book value per share is $46.90. Murphy pays a dividend of $1.25 per share for a yield of 2.00%. Judging from the financials, Murphy has the resources to increase the dividend to shareholders.
Tesoro Corp. (NYSE: TSO), another new position for Loeb, is in the business of refining crude oil into transportation fuels and selling those fuels through its retail stations. Tesoro is an undervalued play that I agree with Loeb on. The company has a forward P/E of 9.43 and a PEG ratio of 0.74. The return on equity is 17.67% and the book value per share is $30.85.
This is another company with solid financials that can increase its dividend. Tesoro currently only pays an $0.80 dividend for a yield of 1.40%. Considering the company's solid balance sheet, I see the dividend increasing. The stock is trading just shy of the 52-week high of $59.56. Of the 20 analysts that follow the stock, 5 have it rated as Strong Buy, 8 a Buy, and 7 a Hold.
Loeb is a big fan of Morgan Stanley (NYSE: MS) CEO Jame Gorman. He thinks Gorman has positioned Morgan Stanley into being able to grow its core investment banking and trading businesses. Most analysts see EPS growth of 14% over the next 5 years.
If Loeb thinks the company is positioned for growth, it also helps that the company has a cheap valuation. Morgan Stanley has a forward P/E of 8.96 and a PEG ratio of 0.58. The stock is currently trading at $22.67 compared to its book value of $30.70. As you can see, Morgan Stanley is cheap from these metrics.
Analysis Supports Loeb's Thesis
We can never know when Loeb is getting out of these positions and that's what worries me about getting into his more high-profile picks of Yahoo! and Herbalife. He already has gains in those positions and I don't want to be buying when he is selling. With these 5 stocks I mentioned – Virgin Media, EADS, Murphy Oil, Tesoro, and Morgan Stanley – they're backed by valuation analysis that supports owning them regardless what Loeb does, but I do thank him for pointing these stocks out!