Value stocks

Dan Loeb’s third point likes ‘Old Tech’ value stocks

Traditionally, tech has been a sector that value investors typically steer clear of, but as the world’s biggest tech companies begin to show their age, some of these “old tech” stocks are starting to look like value stocks. Dan Loeb’s third point actually likes some “old tech” stocks and looks to them with expectations of outperformance in 2022.

Third Point performance in the fourth quarter

The company’s flagship offshore fund fell 5.3% in the fourth quarter, while the Ultra fund lost 7.1%. Third Point’s flagship offshore fund gained 22.7% for the year as a whole, while its Ultra fund returned 26.9%. On an annualized basis since inception, the Offshore fund has returned 15.1%, while the Ultra fund has gained 21.8%.

By comparison, the Credit Suisse Event-Driven Index has returned around 7% since the inception of the two funds. The S&P 500 has returned around 10% and the MSCI World Index has gained around 8% annualized since the funds’ inception.

In the fourth quarter, the top five winners from Third Point were Rivian Automotive, Cie Financière Richemont, PG&E, Intuit and Accenture. Its top five losers were Upstart Holdings, Prudential, Paysafe, The Walt Disney Company and Restoration Hardware.

In its fourth quarter letter, Loeb said the fourth quarter marked the beginning of a market-wide rotation from growth to value that accelerated in January. He expects this year to be the year of “the normalization of supply chains, public health and consumer spending.”

Third Point is now on the lookout for “old” value-oriented tech stocks like Intel that deserve a second look” and merger arbitrage opportunities. The firm also favors certain areas of technology innovation and Series B funding in private markets, which Loeb believes will protect his private portfolio from a significant shock.


Perhaps one of the most surprising stocks in Third Point’s portfolio is Amazon. The traditionally value-oriented fund has held shares of the e-commerce giant on several occasions over the years. Loeb said they built a “significant position” early in the pandemic as they sought a structural acceleration in revenue.

Amazon has lagged its tech peers for much of the past year, and Third Point has strengthened its position. Loeb remains confident that Amazon is “at an important crossroads as new management considers its long-term strategic plan to move the business forward.”

He noted that the online retailer’s latest quarterly earnings report reinforced his view that it is now at an inflection point that should bring improvement in several metrics and an increase in its share price. Loeb sees Amazon’s secular long-term growth drivers as cloud adoption and e-commerce penetration and notes that they remain “firmly intact.”

It expects sales growth to reaccelerate amid easing revenue comparisons and seeks improvements in Amazon’s fixed cost leverage following a heavy investment cycle that has essentially doubled its execution capacity over the past two years. Loeb pointed out that pandemic-related costs should start to fade as the market normalizes.

Additionally, Amazon shares are trading near the bottom of the company’s historic multiple range. Loeb added that Amazon is trading at a 30% to 40% discount to its current intrinsic value, leading to a period of significant re-acceleration in growth and “with an almost limitless track of value accumulation potential.” .

Loeb also highlighted two events that occurred in the current quarter. The online retailer bought back shares for the first time in 10 years. Additionally, management began breaking down the company’s advertising revenue and detailing capital expenditures by category. Loeb believes improving financial disclosure will help investors better understand the different parts of the business and its overall value.

“Old Technology”

The Third Point chief touched on two stocks that could be categorized as ‘old technology’, namely Accenture and Intel. Loeb described Accenture as “the gold standard in IT services” and a “high-quality blender at the crossroads of two post-Covid megatrends.” He noted that the business stands to benefit from accelerating digitalization across multiple industries and an emerging war on IT talent.

Accenture specializes in high value work and leads the way in digital and cloud transformations. Over the past 20 years, the company has compounded free cash flow per share at 12% per year on a debt-free basis. Accenture continued to grow at a strong pace due to growing IT spending, increased IT outsourcing and steady market share gains. Loeb expects accelerating high-single-digit to mid-teens revenue growth in coming years and accelerating free cash flow per share from low-teens around 20% or better.

He noted that the past year has been “very productive” for new Intel CEO Pat Gelsinger. Although Intel shares have remained weak in 2021, Loeb sees a “compelling and understated fundamental story.” He said the chipmaker’s brain drain was a big part of their thesis when they started trying to help him deal with his long-term underperformance, and that problem seems to be reversing.

Loeb also likes Intel’s investment plan, which includes a new manufacturing plant in Ohio and the acquisition of Tower Semiconductors. He thinks Intel is on the right track to recover thanks to returning talent and improving the product line.