Dan Loeb's Favorite Stock Picks

Dan Loeb of Third Point released his second quarter investor letter last week and discussed several key equity positions in his portfolio.

According to Loeb,

's management team is "one with a clear strategic vision, a thoughtful and pro-active approach to capital allocation, and a strong alignment with shareholders." Loeb also added that Allergan's management team is on a mission to create a "growth-oriented pharmaceutical company with attractive long-duration assets while implementing strict expense controls and avoiding high-risk and undisciplined R&D spend."

Loeb wrote that he also finds successful investments from companies that are characterized by "talented management teams, strong and growing free cash flows, and a proven track record of smart capital allocation." Since these companies are often "non-event driven" stories, several years may be needed for management implements their strategies for the growth story to play out. One such company that has been "quietly making a contribution" to Loeb's portfolio is

. He did note that Constellation started as an "event-driven" trade (i.e a transformative acquisition), but over time, the story evolved into a "compelling multi-year earnings growth story" in the consumer staple sector where organic growth "isn't always easy to find."

Loeb also commented on his investment in

, the largest flooring company in the world. According to Loeb, the company's CEO Jeff Lorberbaum has created a "culture and a system of processes" to pursue acquisitions and capacity expansion which resulted in a company that is "entrepreneurial, nimble, and adaptable to change." The investment manager also stated that the company's end markets have only recently gone through a cyclical recovery with many product categories still selling 30 percent below their pre-housing crisis volume. Coupled with "significant" fixed cost reductions and a sustained low interest rate environment has resulted in a "winning formula in place" over the long-term.

Finally, Loeb argued that

is "one of the best capital allocators" within the industrial sector. Over the past 10 years, the company produced an annualized shareholder return of 18 percent, well ahead of the S&P 500's six percent return. Loeb pointed out that the company has created "tremendous value" by deploying in excess of 100 percent of its free cash flow to acquire "asset-light, cash generative growth" companies with "strong competitive moats." Loeb is projecting Roper to growth its earnings organically at a high-single digit rate through the next economic cycle while future acquisitions could potentially generate seven to eight percent annual earnings accretion.