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.
Allergan: Clear Strategic Vision
According to Loeb, Allergan PLC (NYSE: AGN)'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 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."
Constellation Brands: Quietly Making Contributions
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 to implement their strategies for the growth story to play out.
One such company that has been "quietly making a contribution" to Loeb's portfolio is Constellation Brands, Inc. (NYSE: STZ). 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."
Related Link: Why Dan Loeb Loves Yum! Brands And Devon Energy
Mohawk Industries: Largest Flooring Company
Loeb also commented on his investment in Mohawk Industries, Inc. (NYSE: MHK), 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.
Roper Technologies: Sector's Best Capital Allocator
Finally, Loeb argued that Roper Technologies Inc (NYSE: ROP) 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 6 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 grow its earnings organically at a high-single digit rate through the next economic cycle while future acquisitions could potentially generate seven to 8 percent annual earnings accretion.
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