Dan Loeb warns tech stocks may not bottom out. Here he invests instead.

Dan Loeb says he’s adding to his holdings in the only part of the market that’s hot: oil and gas.

Energy was the best performing sector of the S&P 500 with a stunning 49% rise this year as the broader index SPX,
has fallen by 13%.

In an investment letter, Loeb, the chief executive of hedge fund firm Third Point, says US oil and gas companies are “particularly interesting” because they benefit from ill-conceived energy policies in most developed countries, including the US

“The negative impact of these botched policies has been amplified by well-intentioned but disastrous ESG initiatives, which collectively have resulted in a lack of new investment in the industry. These companies will return most of their cash flow to shareholders through debt repayments, share buybacks and cash dividends,” he said.

He said Third Point built positions in oil and natural gas companies and other metals companies in the first quarter that could benefit from inflation, supply shortages and electric vehicle adoption.

Loeb said he extended position at Shell SHEL,

that Third Point initiated last fall as he urged the energy giant to simplify. “We reiterated our view that Shell’s portfolio of diverse businesses, ranging from deepwater oil to wind farms, fueling stations and chemical plants, is confusing and unmanageable,” he said. He called discussions with management, board members and other shareholders “constructive” as he welcomed Shell’s decision to move its headquarters to the UK and create a single class of shareholders.

Third Point initiated a position in Glencore GLEN,
the mining giant and the trading company. Not only does Glencore provide copper and nickel, critical inputs for the transition to renewable energy, but thermal coal can be a bridge in Europe’s transition away from Russian energy, Loeb said.

He also said that Pacific Gas & Electric PCG has tremendous value and potential,
as it emerges from bankruptcy and says it has inherited its top position from SentinelOne S,
He commended CEO Patti Poppe for transforming the organization, saying it will continue to converge towards the industry average while growing revenue by 10% per year.

Loeb said it “essentially hedged” SentinelOne, which he also believes is the most volatile position. Shares of the software security company are down 48% this year.

Loeb’s flagship offshore fund fell 11.5% in the first quarter, which is worse than the S&P 500’s 4.6% decline during that period, but it shed just 1% in April versus an 8% decline in the S&P 500 %.

Loeb says he doesn’t see the bottom for tech stocks just yet.

“Even after dramatic declines, it’s difficult to bottom at the high-growth and highly valued end of the technology sector, especially given that many of these companies rely on stock-based compensation and controversial accounting and reporting techniques. It appears that many of the companies that have used this type of compensation to attract employees may struggle to retain employees, resulting in more dilution for future stock awards or higher cash compensation, which could weigh on margins for analysts, who rely on adapted measures rather than traditional measures. old-fashioned GAAP.” Dan Loeb warns tech stocks may not bottom out. Here he invests instead.

Brian Lowry

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