Billionaire Dan Loeb’s Top 10 Stock Picks

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In this article, we discuss billionaire Dan Loeb's top 10 stock picks. To skip our detailed discussion on Loeb's investment strategy, go directly to Billionaire Dan Loeb's Top 5 Stock Picks.

Dan Loeb's Hedge Fund's Returns

Daniel Seth Loeb is an American billionaire and hedge fund manager who founded Third Point Management in 1995. As of the end of 2020, the New York-based hedge fund has over $13 billion in managed securities. The 59-year-old billionaire whose worth stands at $3.6 billion proved his stock-picking skills in 2020 as his hedge fund gained 7.2% in December and 20.6% in 2020. When the hedge fund industry was getting clobbered by the short squeeze initiated by retail and Reddit investors, Third Point was gaining as the fund returned 1.9% in January.

Talking about the GameStop drama in his latest letter to investors, Loeb said:

"In addition, after a few previous painful experiences of our own taking positions against companies with large short interests, we had a preview of what can happen and cut our losses. Since then, we have mostly avoided taking short stakes in companies with modest liquidity and large short interests."

Dan Loeb's Investment Strategy

Raised in Santa Monica, California, Loeb graduated from Columbia University with an economics degree. Business and entrepreneurship run in his family. His father was a general counsel for retailer Williams-Sonoma. His father also served as an outside director of Mattel, Inc. and became the interim President of Mattel. Loeb’s great-aunt Ruth Handler co-founded Mattel Inc.

Loeb is an activist investor known for initiating positions in companies and launching board shakeups and forcing managements to improve performance. He has an eye for inefficiencies that prevent companies from reaching their true potential. He successfully launched corporate battles and enforced key changes at major companies including Yahoo!, Sony, Sotheby’s and Ligand Pharmaceuticals.

After buying over $1 billion stake in Intel, Loeb plans to shake up the company and see some changes. Here’s a paragraph from his scathing letter to Intel’s management:

“We cannot fathom how the boards who presided over Intel’s decline could have permitted management to fritter away the company’s leading market position. Stakeholders will no longer tolerate such apparent abdications of duty.”

Billionaire Dan Loeb's Top 10 Stock Picks
Billionaire Dan Loeb's Top 10 Stock Picks

Dan Loeb's Comments On How He Started Third Point and His Own Investment Approach

"At Third Point, we have a different culture which is one, based on teamwork, cooperation, and a real focus on the back to the investor coming first, but a real focus on what's good for the whole firm, and how we are going to be successful as a firm. So what does that do? It prevents courting of information, it prevents people from backbiting against other people from doing a lot of bad behaviors. What does it create? It creates people that are supporting each other... Things like teamwork, transparency, honesty, creativity. In terms of how do we invest, just to take it down a level, we have a value-based philosophy. We are not momentum guys, we're also not macro guys. We invest in things where there's a fundamental analytical framework that we can understand, pretty much explain using third or fourth grade math, and with a set of dynamics that we also understand, probably a higher level of legal analysis and accounting analysis, and then regulatory analysis as well.

The transition initially from Citigroup to starting my own company, I used to write down 'Third Point' over and over on a piece of paper for years. I used to just fantasize about starting my fund and how I would name it, Third Point Capital, Third Point Management, then I do logos. This was really a dream of mine to get this thing going. So I left Citi in February, and the transition was just really to make sure I had some capital. Luckily, a good friend of mine who was a wealthy individual who promised to give me about a million and a couple of hundred grand. I didn't have a wealthy family but at least, they were in position. My parents, and other people gave me a couple hundred thousand dollars each. So that was really the start of Third Point.

The night before I started investing, I absolutely panicked. I thought, 'Oh my God. What am I doing?' I'm up back to stories again and said, 'I'm a fraud. I'm a fraud. There's no way I get other people have entrusted me with their money.' Then I was up 8% the first month and I did not have that fraud feeling again. It crops up every now and then, you have a bad day or a bad month even after 10 years."

Dan Loeb's returns stand out in the hedge fund industry which is otherwise struggling. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Let’s start our list of billionaire Dan Loeb’s top 10 stock picks.

10. Intuit Inc. (NASDAQ: INTU)

Value: $379,850,000 Percent of Dan Loeb’s 13F Portfolio: 2.92% Number of Hedge Fund Holders: 68

Intuit is behind several famous software products used for accounting, tax and finance. The company’s products include TurboTax, personal finance app Mint and QuickBooks. Intuit stock is up 75% over the last 12 months. Mizuho recently gave bullish comments about Intuit along with several other software stocks, citing an increasing demand and a recovery in spending. The firm has a $450 price target for the company.

As of the end of the fourth quarter, 68 hedge funds in Insider Monkey’s database of 887 funds held stakes in Intuit Inc., compared to 54 funds in the third quarter. Fundsmith LLP is the biggest stakeholder in the company, with 4.5 million shares, worth $1.7 billion.

In their Q3 2020 investor letter, L1 Capital International Fund highlighted a few stocks and Intuit Inc (NASDAQ:INTU) is one of them.

Here is what L1 Capital International Fund said:

"Intuit epitomises the consistency, predictability and longevity of growth we seek in high quality businesses.

Intuit currently operates through 2 main divisions:

Intuit also provides personal financial software and services through its Mint and Turbo products and has announced the acquisition of Credit Karma for US$7.1 billion which will significantly expand its personal finance capabilities, creating a third leg to Intuit’s growth stool.

9. Burlington Stores, Inc. (NYSE: BURL)

Value: $436,788,000 Percent of Dan Loeb’s 13F Portfolio: 3.36% Number of Hedge Fund Holders: 29

New Jersey-based Burlington Stores is a major department store company. The stock is up 144% over the last 12 months. The stock recently reached its 52-week high after the company posted upbeat Q4 results, with a 3.4% revenue growth even without a strong ecommerce channel. The company also increased its new store target to 2,000 from 1,000.

According to our database, the number of BURL’s long hedge funds positions decreased at the end of the fourth quarter of 2020. There were 29 hedge funds that hold a position in Burlington Stores compared to 30 funds in the third quarter. The biggest stakeholder of the company is Adage Capital Management, with 2.08 million shares, worth $544.8 million.

8. Alphabet Inc. (NASDAQ: GOOG)

Value: $455,686,000 Percent of Dan Loeb’s 13F Portfolio: 3.51% Number of Hedge Fund Holders: 157

Alphabet ranks 8th on the list of billionaire Dan Loeb’s top 10 stock picks. Other hedge funds are also loading up on Alphabet. Insider Monkey’s database of about 900 hedge funds show that 179 elite funds ended the fourth quarter with Alphabet stock on their portfolios, compared to 162 funds a quarter earlier. The collective value of these stakes is over $21 billion. Among the notable hedge funds that are buying Google stock include Tiger Cub Lee Ainslie.

In their Q4 2020 investor letter, Bretton Fund highlighted a few stocks and Alphabet Inc. (NASDAQ:GOOG) is one of them. Here is what the fund said:

"Google (aka Alphabet) was one of our best performing stocks last year, returning 30.9%, while its earnings per share increased 19%. As lockdowns first went into place in the spring, many advertisers hit pause on their campaigns, waiting—like a lot of us—to see what the world would look like. And then—like a lot of us—advertisers adjusted. Travel companies cut back their campaigns, while ads for other goods, like athleisure wear and video games, picked up the slack. Google had a rough second quarter, but was back in the swing of things by the next quarter.”

7. Amazon.com, Inc. (NASDAQ: AMZN)

Value: $472,255,000 Percent of Dan Loeb’s 13F Portfolio: 3.64% Number of Hedge Fund Holders: 273

Billionaire Dan Loeb slashed his stake in Amazon by about 30% in the fourth quarter, ending the period with 145,000 shares of the company, worth $472.25 million. Evercore ISI recently said that Amazon is in a better position to offset the effects of the possible hike in federal minimum wage amid its tech efficiencies and higher sales per employee. Amazon is one of the 30 most popular stocks among hedge funds, as of the end of the fourth quarter.

6. Charter Communications, Inc. (NASDAQ: CHTR)

Value: $496,162,000 Percent of Dan Loeb’s 13F Portfolio: 3.82% Number of Hedge Fund Holders: 90

Charter Communications Inc. ranks 6th on the list of billionaire Dan Loeb’s top 10 stock picks. The fund left its position in the company unchanged in the quarter, with 750,000 shares, worth $496.16 million. In the fourth quarter, the broadband company added 246,000 connections, down from 339,000 adds in the same period last year. Total new customer relationships added in the period came in at 197,000, compared to 268,000 additions a year earlier. Revenue in the quarter, however, jumped 7% to total $12.62 billion, beating the Street’s estimate by $50 million.

A total of 90 hedge funds tracked by Insider Monkey were bullish CHTR at the end of the fourth quarter, up from 88 funds a quarter earlier. Chris Hohn's TCI Fund Management is the biggest stakeholder of the company with 10.4 million shares, worth $6.9 billion.

Avenir Capital said in their Q4 2020 letter that Charter Communications, Inc. (NASDAQ: CHTR) was one of their biggest gainers. Here is what Avenir Capital has to say about Charter Communications, Inc. in their investor letter:

"Our third biggest gainer was Charter Communications, the U.S. broadband connectivity business. Our opportunity to buy Charter came in early 2018 when the business was sold off heavily on fears of cable TV cord cutting and the impact of streaming businesses such as Netflix on traditional cable. We felt the bulk of Charter’s underlying value came from its broadband internet business, a highly concentrated industry in which Charter holds a dominant position, not the traditional cable TV business. Charter’s share price has increased by 112% since our initial purchase at US$313 per share, including an increase of 35% in 2020 to end the year at US$665 per share.”

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Disclosure: None. Billionaire Dan Loeb's Top 10 Stock Picks is originally published on Insider Monkey.