(Adds details on Third Point positions)
By Svea Herbst-Bayliss
BOSTON, May 1 (Reuters) - Hedge fund Third Point told investors Friday it has taken new positions in Yum! Brands and Devon Energy and thinks U.S. stocks remain attractive because economic data should improve and a near-term rate hike seems unlikely.
Daniel Loeb’s $17.5 billion hedge fund bought into fast-food restaurant company Yum! during the first quarter after determining it has “turned the page on recent trouble in its Chinese business,” and that profit would recover dramatically over the next one to two years.
“We think investors should want to own Yum! for its unique open-ended middle-class growth story in China and its strong and growing franchise-led cash flows outside China,” Third Point said in the letter to investors, which was seen by Reuters.
Yum!’s stock price gained 4 percent in morning trading to$89.40 per share.
Third Point did not disclose how much money it put to work in Yum!
Third Point gave Yum! management strong marks for having tackled two food-safety issues in China over the last three years and said it was focused on narrowing the performance gap between its KFC and Pizza Hut brands and competitors.
The New York-based fund also took a new stake in Devon Energy, saying it could perform better as management begins to focus its “capital in fewer, higher return areas.”
The fund urged management to continue streamlining its portfolio and focus on top-tier U.S. assets in the Permian Basin, Eagleford, and Cana-Woodford.
Devon’s share price rose 0.2 percent to $68.35.
Third Point is one of the hedge fund industry’s most closely followed investors, in part because of its strong performance. Loeb has returned an average 20.5 percent for clients every year since 1995, more than double the Standard & Poor’s 500 index.
During the first quarter, Third Point gained 3.4 percent, as bets on Actavis, FANUC Corp. and Dow Chemical paid off even as bets on Alibaba, Ally Financial and Kroton Educacional SA pinched.
Overall Third Point, which often has a taste for international investments including in Greek bonds and Japanese companies, said there were still good bets to be made in U.S. stocks in spite of worries about an impending rate hike and the dollar’s strength.
The firm said it expects economic data to improve and that a Federal Reserve rate hike in June seems “unlikely,” despite some analyst forecasts to the contrary. (Reporting by Svea Herbst-Bayliss; editing by Richard Valdmanis)