Dan Loeb: Growth Stocks Are Now Value Stocks

Johnny HopkinsDan Loeb, Investing StrategyLeave a Comment

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One of the investors we follow closely here at The Acquirer’s Multiple is Dan Loeb, CEO at Third Point Management. In his latest Q2 2018 shareholder letter Loeb makes the point that he’s now including ‘growth’ stocks into his portfolio in addition to ‘traditional’ value based stocks saying:

“The value-based argument for owning “growth” stocks (or those with high EPS growth) is that their P/E premium to the rest of the market is not especially large compared to what we have seen historically (for a dramatic illustration of this, see the 1999-2000 tech bubble).”

Here’s an excerpt from that letter:

Over time, we have generated returns by adjusting our exposure levels (sometimes adding decisively at market lows), by shifting our allocation to equity versus credit, and even by adding skills in new areas like sovereign and structured credit to take advantage of dislocations in those markets. Over the past five years, we have added adjacent styles to our equity investing tool kit, moving from purely an event-driven, value-based universe of stocks to include “compounders” and, increasingly, what are classically considered “growth” stocks.

The value-based argument for owning “growth” stocks (or those with high EPS growth) is that their P/E premium to the rest of the market is not especially large compared to what we have seen historically (for a dramatic illustration of this, see the 1999-2000 tech bubble). We have also discussed with investors the insight that stocks with unprecedented growth rates have defensible valuations when one extends earnings out two to three years. We are happy owning these stocks for longer periods at higher multiples and absorbing the inevitable volatility, particularly in this late cycle environment.

Of course, we have not shifted our entire portfolio to fast-growing, high-multiple securities but we see a place for the companies of tomorrow as investments alongside our classic special equity and credit situations. In a world of increasing disruption in virtually every industry, we recognize that we must continuously evolve our framework or risk being disrupted too.

You can read the entire Third Point Q2 2018 shareholder letter here:

Third Point Q2 2018 Investor Letter by Zerohedge on Scribd

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