Dan Loeb’s Third Point just released its Q2 letter that details performance and investment outlooks for the flagship Third Point Offshore Fund. The master fund was up 3.3% in Q2, good for any other fund but less than okay for Dan Loeb who has been ranking in the best returning hedge funds for two straight years now. The fund is up 12.6% for the year, but experienced a major loss last month when Third Point Offshore was down 1.8%.
Loeb wants new dividend strategy from CF Industries
The full letter is embedded below. Most notably, Loeb discusses his new investment in CF Industries Holdings, Inc. (NYSE:CF), a fertilizer company. CF Industries Holdings, Inc. (NYSE:CF) is already breaking all holds and is up 10% for the day.
The letter talks about how undervalued the company is despite having a stable business and cash flow. Loeb says that the company has the ability to highlight the value of its stable cash flow stream by paying a significant portion of it as a dividend. He also lauds the management of CF Industries and says that the company makes additional cash when nitrogen supply exceeds demand and this is not priced in. Loeb believes that this adds $15 of value per share for every $25 change in nitrogen price above the cost floor. Furthermore, in Third Point’s estimation, the execution of $2.25 billion in buyback will add another 20% to the company’s value.
Loeb calls Sony Entertainment a “red-headed stepchild”
Dan Loeb also talks extensively about his investment in Sony Corporation (NYSE:SNE) (TYO:6758), where he has been unsuccessfully pushing for a spinoff of the entertainment unit. We have also discussed short positions in Sony Corporation (NYSE:SNE) (TYO:6758), as apparently other hedge funds are not as excited about Sony as Loeb is.
Third Point apparently finds a lack of creativity in Sony’s entertainment business. Loeb says that the company relies on old Merv Griffin Productions workhorses like Jeopardy and Wheel of Fortune. The fund thinks that there is a lot of unexplored potential in the business, especially from film productions that Sony is not currently exploiting. Loeb says that the entertainment unit is in ‘desperate’ need of supervision and is severely under-perfoming its peers in terms of revenue generation.
The letter also includes Loeb’s recent sale of 40 million shares of Yahoo! Inc. (NASDAQ:YHOO).
Third Point hired Christopher McCoy as an analyst. McCoy has an MBA from Stanford University and has worked in Carlyle Group and Evercore Partners.