Earlier this week we posted a portion of Dan Loeb’s Third Point Avenue Q4 2011 shareholder letter. The segment posted discussed Yahoo’s valuation and why Loeb is the largest shareholder.
We have just obtained the full letter and have posted it below. Loeb discusses the great environment for investing, and states that he is 120% net long. He also does not miss a chance to heavily criticize President Obama. Below is a quote from Loeb on that topic:
How Warren Buffett Uses Discount Rates To Value Stocks
Warren Buffett has never detailed the process he uses to value the businesses he acquires for Berkshire Hathaway. However, over the years, he has provided some limited insight into his methods. Q3 2020 hedge fund letters, conferences and more Based on these comments, it is widely assumed that Buffett uses a discount cash flow model Read More
Starting at home, recent economic data has trended upwards. U.S. data in services/manufacturing, PMIs, auto sales and employment mostly surprised to the upside in January and again in February. There is a growing perception that two of the most significant drags on US growth – housing and jobs – are starting to turn the corner.
Perhaps this should be unsurprising, since in a Presidential election year economic indicators often seem to trend in the right direction for the incumbent. For this reason, while we are constructive in the near?term based on these tailwinds, we see the potential for a dangerous 2013 and beyond. Regardless of one’s political beliefs, it is hard to deny that the unabated policies of a second Obama Administration would lead the country down an unsustainable path of exploding deficits and marginal private sector growth. While our concerns about a second Obama term are muted by the fact that much of his agenda will be stymied by a Republican House and most likely a Republican Senate, gridlock is not an effective way to run the country. It is, however, preferable to out?of?control entitlement spending and deficits which would result from another Obama administration in which both houses of Congress are under his control. Sadly, concerns about tax increases, haphazard regulation, and further redistributive policies will hold private capital and market participants in check for as long as Mr. Obama remains President.
Loeb also made a nice profit in Skyworks Solutions, Inc (NASDAQ:SWKS). Loeb describes below how the market missed the valuation by focusing on the Apple Inc. (AAPL) aspect of the story:
Long Equity Position: Skyworks Solutions
Skyworks Solutions is a leading provider of radio frequency (RF) semiconductors for wireless devices. The Company is levered to the growth in connected devices such as cellphones, tablets, and consumer electronics, and in connection options per device (cellular 2G, 3G, 4G, WiFi, Bluetooth). The growth in wireless devices and forms of connectivity is further amplified by the proliferation of new wireless spectrum bands used in carrier networks (e.g. 700MHz, 800MHz, 1900MHz, 2100MHz, and 2500MHz). These trends have resulted in a surge of RF semiconductor content in wireless devices.
During late 2011, Skyworks’ shares sold off aggressively due to market share shifts within the iPhone 4S. By focusing exclusively on the Apple story, the markets missed the company’s growing success outside of Apple products and the secular trends noted above. Tax?loss selling moved the share price from $22 to $14, and we capitalized on the sell?off to build a partially hedged position in December. Skyworks was trading at a steep P/E discount to the semiconductor space and more specifically its RF peers RFMD and TQNT. With solid 4Q results and 1Q guidance, continued 4G device traction, a window to regain share within iPhone 5 in 2Q/3Q, and the recovery in semiconductor shares, we believed Skyworks was poised to re?rate back toward peer P/E multiples, which would imply nearly $30 per share. Our thesis came to fruition quickly, and we exited the position in the mid? $20’s for a tidy gain early in March.
The full shareholder is embedded below in scribd:
2011 Third Point Q4 Investor Letter TPOI