Daniel Loeb goes bargain hunting is the latest heads-up for investors trying to outperform the market.
Daniel Loeb is the billionaire founder of the hedge fund Third Point, with an investment strategy of “opportunistic investing in equities, corporate and structured credit, and venture capital strategies,” according to the Third Point website.
Daniel Loeb founded Third Point thirty years ago, converting $3.4 billion in seed money into a financial powerhouse with nearly $12 billion in assets under management.
“Daniel Loeb goes bargain hunting is the latest heads-up for investors trying to outperform the market”
WEALTH TRAINING COMPANY
When Daniel Loeb Goes Bargain Hunting, those in the know watch keenly
Daniel Loeb has been called “one of the most successful hedge fund managers of his generation” by The Wall Street Journal, generating average annualized returns of 16% over 28 years, and beating the returns of the S&P 500 by nearly 6%.
Daniel Loeb has long stressed investing in “high-quality companies which trade at reasonable valuations” and he doesn’t lose sight of “their prospective growth.”
Daniel Loeb Goes Bargain Hunting with Apple in his Gunsight
Third Point’s greatest new position during the second quarter, by a fair margin, was Apple (AAPL -0.91%). Daniel Loeb’s Third Point bought 1.95 million shares of Apple worth roughly $411 million, which represents nearly 5% of Third Point’s portfolio, making it his seventh largest stake.
In a recent letter to shareholders, Daniel Loeb addressed the acquisition at length, noting he purchased Apple shares in April. A casual glance at the stock chart reveals that the stock was selling for 26 times earnings, a discount to a multiple of 27 for the S&P 500, at the time of writing. Daniel Loeb noted Apple’s “relative multiple had compressed toward a multi-year low,” thanks to “several years of stagnant growth.”
“high-quality companies which trade at reasonable valuations”
Daniel Loeb
Regarding Apple’s compelling valuation aside, Daniel Loeb cited several factors making the stock a potential hot pick, which included the company’s ecosystem of 2.2 billion active devices and market-leading positions in several form factors across numerous key markets.
Investors fear that Apple would be an “artificial intelligence (AI) loser,” but Daniel Loeb came to another conclusion. He thinks the imminent release of Apple Intelligence — a host of user features steeped in generative AI — will drive “meaningful demand within Apple’s installed base.” He posted this, “AI-related demand could drive a step change in improvement in Apple’s revenue and earnings over the next few years.”
A few other prominent investors also come to the same conclusion about Apple’s stock.
Apple’s revenue is up less than 1% for the first nine months of its 2024 fiscal year after falling 3% in fiscal 2023, thanks to weak iPhone sales. However, inflation fell to 2.9% in July, marking its lowest rate in three years. More competitive prices should give consumers more discretionary income. Moreover, Apple announced the date for its annual iPhone reveal, scheduled for Sept. 9, when the company will provide details for an AI-powered iPhone. The results could spark demand among Apple loyal customers, fueling a booming upgrade cycle for the iPhone 16.
“Third Point significantly increased its stake in Taiwan Semiconductor Manufacturing (TSM 3.07%)” – Wealth Training Company
Daniel Loeb Goes bargain-hunting for a semiconductor manufacturer
Third Point significantly increased its stake in Taiwan Semiconductor Manufacturing (TSM 3.07%), often referred to as TSMC, during the second quarter. Daniel Loeb’s Third Point bought an additional 850,000 shares of TSMC, increasing his total holdings to 2 million shares worth roughly $352 million and representing 4% of Third Point’s portfolio, making it his 10th largest position.
Daniel Loeb has been expanding Third Point’s stake in TSMC since initiating the position in May 2023. He noted the company is coming off its “worst year since the Global Financial Crisis,” making it a compelling opportunity. Daniel Loeb thinks the combination of cyclical recovery and strong demand for AI will drive “substantial earnings growth for the company.”
TSMC occupies a unique position in the industry, according to Loeb, with a market share of more than 90% for “leading-edge semiconductor manufacturing,” which includes the chips used for AI.
While AI currently represents a “relatively small percentage” of TSMC’s sales, he sees TSMC’s “AI revenue growing by multiples in the coming years.
Daniel Loeb could be making a good call. TSMC’s dominant market share of high-end processors makes it an odds-on favourite to benefit from these secular tailwinds. Furthermore, after suffering declines of more than 3% last year, the smartphone market has rebounded this year, and it is expected to notch growth of nearly 6%, according to data supplied by market intelligence firm IDC.
“The push for companies to figure out how AI can reduce costs continues despite a few successful cases” – Wealth Training Company
As one of the leading providers of smartphone chips, this return of smartphone growth could also boost TSMC’s results.
In the second quarter, TSMC’s revenue shot up 40% year over year, while earnings per share climbed 36%.
The company’s management expects its growth streak to continue, guiding revenue growth of 34% in the third quarter.
Some analysts have noted that TSMC tends to issue conservative guidance. So the results could be better.
The push for companies to figure out how AI can reduce costs continues despite a few successful cases.
The hype around AI continues to remain strong.
The estimates vary for the market for generative AI, which is expected to be worth between $2.6 trillion and $4.4 trillion annually over the coming decade, according to global management consulting firm McKinsey & Company.
A lower interest rate environment, spurring an economic recovery, and adoption of AI could provide multiple tailwinds to drive TSMC higher.
So Daniel Loeb goes bargain hunting just as the Fed’s last of the major central banks is less than a week away from easing its boot on restrictive policy with a 25, or maybe 50 basis points rate cut, what some believe could be a series of rate cuts.
