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Dan Loeb says he is boosting his holdings in the only part of the market that’s hot: oil and gas.
Energy has been the best performing sector of the S&P 500 with a blistering 49% surge this year, as the broader index
SPX,
has dropped 13%.
In an investment letter, Loeb, the chief executive of the hedge fund firm Third Point, says U.S. oil and gas companies are “particularly interesting” because they benefit from ill-conceived energy policies in most developed countries, including the U.S.
“The negative effects of these bungled policies were compounded by well-intentioned but disastrous ESG initiatives that together resulted in a dearth of new investments in the sector. These companies will largely return their cashflow to shareholders via debt paydowns, share repurchases, and cash dividends,” he said.
He said Third Point initiated positions in oil and natural gas companies in the first quarter, as well as other metals companies that can benefit from inflation, supply shortages and the adoption of electric vehicles.
Loeb said he extended the position in Shell
SHEL,
SHEL,
that Third Point initiated last fall, as he pushes the energy giant to simplify. “We have reiterated our view that Shell’s portfolio of disparate businesses ranging from deep water oil to wind farms to gas stations to chemical plants is confusing and unmanageable,” he said. He called discussions with management, board members and other shareholders “constructive” as he cheered Shell’s decision to redomicile its headquarters to the U.K. and create a single shareholder class.
Third Point initiated a position in Glencore
GLEN,
the mining giant and trading firm. Not only does Glencore supply copper and nickel, critical inputs to the transition to renewable energy, but thermal coal can be a bridge from Europe’s transition away from Russian energy, Loeb said.
He also said there’s tremendous value and potential in Pacific Gas & Electric
PCG,
as it emerges from bankruptcy and said it’s taken over as its top position from SentinelOne
S,
He praised CEO Patti Poppe for transforming the organization and said it will continue to re-reate toward industry averages while also growing earnings at 10% per year.
Loeb said it “substantially hedged” SentinelOne, which he also said it was its most volatile position. The software security firm’s shares have skidded 48% this year.
Loeb’s flagship offshore fund dropped 11.5% in the first quarter, which is worse than the 4.6% drop for the S&P 500 over that time period, but it lost only 1% in April against a 8% drop for the S&P 500.
Loeb says he doesn’t see the bottom just yet for tech stocks.
“Even after dramatic declines, it is difficult to call a bottom in the high-growth, high-valuation end of the tech sector, especially given that many of these companies relied on stock-based compensation and controversial accounting and reporting techniques. It appears that many of the companies which used this type of compensation to attract employees may have retention difficulties, leading to increased dilution for future stock grants or increased cash wages, which could weigh on margins for analysts who rely on adjusted measures rather than old-fashioned GAAP.”
