Third Point Partners founder Dan Loeb has told investors that energy giant Shell is finally in the right hands, while predicting more upside for its stock.
An investor letter from the activist Monday said CEO Wael Sawan and Chief Financial Officer Sinead Gorman were “backing up their words with actions” by canceling projects with poor return profiles, paring back capital spending and returning more cash to shareholders.
Although Third Point did not share a price target, it sees growing cash flow and dividends through the end of the 2020s and further upside from portfolio management, Loeb said.
“We initially argued (and still believe) that the fastest path to improved performance and better valuation would be a separation of Shell’s business units to better attract shareholders and improve accountability, the latter of which was essential when the company was in the hands of executives who had demonstrated virtually no focus on shareholder value creation,” the update concluded.
The activist also shared an update on Danaher, its longest holding, predicting an increasing growth rate thanks to its biotechnology and life sciences segments. The company’s environmental and applied solutions division, Veralto, is scheduled for a spinoff by the end of 2023.
Third Point’s offshore fund returned 1.1% in the second quarter, bringing year-to-date returns to negative 3%, while the S&P 500 index is up 16.9%. The fund manager said a contributor to its underperformance was undersized positions in tech giants Microsoft, AMD, Amazon, and Google, several of which have benefited from a boom in artificial intelligence stocks.
“We are mindful of the ‘hype cycle’ that surrounds AI as well as the attendant regulatory risks,” Loeb wrote at the end of a lengthy exploration of the opportunity for investors, emphasizing semiconductor and cloud platform companies. “And while the AI investment opportunity remains in its infancy and will take time to mature, we see clear evidence that it is already leading to the creation and destruction of large profit pools, and many stocks will be beneficiaries.”
Third Point also reduced its exposure to single-name short positions.