Dan Loeb’s Third Point Likes Japan, Gives 2 Stock Picks
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Dan Loeb runs Third Point LLC, one of the most well-renowned activist hedge funds. With roughly $11.7 billion under management, Third Point is one fund investors should pay attention to.
The fund released its quarterly letter to investors last Wednesday. In particular, the letter touches on Third Point’s investments in Japan, International Paper (NYSE: IP) and Liberty Global (NASDAQ: LBTYA).
Third Point likes Japan due to monetary policy
In the letter, Third Point brags about having foreseen the recent shifts in Japan. In particular, Third Point reveals that it had bet against the yen and gone long Japanese stocks.
Japanese stocks have been on a tear since Shinzo Abe was elected prime minister, and have continued to run after newly named Bank of Japan Governor Haruhiko Kuroda unveiled his aggressive monetary policy last week. Meanwhile, the Japanese yen has depreciated significantly against foreign currencies, particularly the US dollar.
Third Point writes, “The impact of this bold plan should be far-reaching, not only for Japanese companies but also for Japan’s trading partners...We believe there is still value in our initial currency/index trade...[we] have also taken selected positions in single name stocks that we believe will benefit from this policy shift.”
Traders looking to follow Third Point could consider buying iShares MSCI Japan Index (NYSEMKT: EWJ) -- an ETF that holds Japanese stocks. Third Point does not reveal which individual stocks it took positions in, but those positions are likely in Japanese exporters such as Sony or Toyota.
Third Point believes International Paper will buy back stock and increase its dividend
The first individual stock mentioned in the letter is International Paper. Third Point likes the company primarily because it controls virtually the entire North American Containerboard industry -- an industry Third Point believes will produce “strong and stable cash flow.”
Third Point notes that the company’s CEO John Faraci will retire next year. Ahead of his retirement Third Point states that it believes Faraci will “cement his impressive legacy by...[repurchasing] shares, [and] increase [International Paper’s] dividend.”
Third Point suggests that International Paper should soon generate $2 per share in free cash flow. Ultimately, Third Point believes International Paper’s dividend will rise to this $2 per share figure; currently, the company only pays $1.20 per share.
Third Point likes Liberty Global’s exposure to the European cable market
Third Point said it increased its stake in Liberty Global after it acquired Virgin Media. Liberty Global is Europe’s largest cable operator.
Third Point remarked on the attractiveness of Europe’s cable market, noting that “relative to the United States....Europe offers materially higher volume growth, lower churn, and meaningful penetration opportunity.”
As for more clear catalysts, Third Point notes that it believes Liberty will initiate a substantial stock repurchase program and unveil “accretive wireless and B2B initiatives.” For 2014, Third Point believes Liberty could generate more than $6 per share of free cash flow, and that even after a recent move, the company’s relative value “remains attractive.”
Following hedge funds into trades
Copying the trades of hedge funds -- even the most high profile ones -- isn't always the best idea. For proof of that, look no further than Bill Ackman’s recent debacle with J.C. Penney, a position his fund is currently underwater on by several hundred million dollars.
That said, active investors should pay attention to what prominent funds are doing, and if possible, read their investor letters. If nothing else, some investing ideas may be gleaned from them.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!