In a market where the spotlight is often on the big tech companies known as the “Magnificent Seven,” Third Point’s Dan Loeb is taking a different approach. He is looking for investments outside of the red-hot digital world, focusing on companies in the “physical world” that may be overlooked by many. These companies may have competitive moats, consolidated industry structures, unique products, or capital intensity that make them difficult to disrupt.
Loeb mentioned industries such as aggregates, nuclear power, life science tools, specialty alloy manufacturers, and commercial aerospace manufacturers as areas of interest. While he did not disclose specific stocks in his investor letter, his fund’s holdings include companies like Vistra, a retail electricity and power generation company, Ferguson, the largest U.S. distributor of plumbing supplies, and CRH, a building materials company based in Dublin.
Despite the hype surrounding tech giants like Amazon, Microsoft, Meta, Alphabet, Apple, Nvidia, and Tesla, Loeb believes that traditional businesses deserve attention as well. While the Magnificent Seven have led the current bull market, there are opportunities to be found in other sectors. As investors look beyond tech, Loeb sees potential in materials, industrials, and other industries that may be undervalued.
Third Point’s hedge fund returned 1.8% in the second quarter of 2024, bringing its year-to-date gains to 13.1% as of June 30th. While this performance was slightly below the S&P 500’s 14.5% return during the same period, Loeb remains optimistic about the outlook for his portfolio. By diversifying into traditional investments and taking advantage of cheaply priced stocks in sectors like materials and industrials, he believes that his fund is well positioned for future growth.
While the tech industry may dominate the headlines, there are still opportunities to be found in traditional businesses. Dan Loeb’s approach to investing in the “physical world” showcases the potential for growth and stability in industries that may not be as flashy as their digital counterparts. As the market continues to evolve, diversification and a focus on overlooked opportunities could prove to be a winning strategy for investors looking beyond the Magnificent Seven.