Monday, November 21, 2011

New Hedge Fund Wisdom Issue Now Available!

The brand new Q3 2011 issue of our premium Hedge Fund Wisdom newsletter is now available! Current subscribers, please login at to download it.

Included In The New 91-Page Issue:

- Long versus short: An analysis of battleground stock Netflix (NFLX)
- Investment thesis on potential housing recovery play: Lowe's (LOW)
- In-depth equity analysis of payment-processor: Visa (V)
- Hedge fund consensus buy & sell list
- Portfolio updates on 25 prominent hedge funds
- Expert commentary on their latest portfolio moves

Written by hedge fund analysts, our convenient newsletter saves you a ton of time by aggregating and summarizing the latest hedge fund activity. And most importantly, it tells you WHY they were buying or selling a particular stock.

See a FREE SAMPLE of a full past issue by clicking here (.pdf)

See What Top Hedge Funds Have Been Buying & Selling:

Published four times a year. To pay by credit/debit card or PayPal, please click the 'subscribe' button below and read the next page carefully to select your method of payment.

1 Year Subscription (Save 20% with this option): $299.99 per year

Quarterly Subscription: $89.99 per quarter

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Tuesday, November 15, 2011

See What Top Hedge Funds Are Buying & Selling: Subscribe to Our Newsletter

The brand new Q3 issue of our premium Hedge Fund Wisdom newsletter will be released on November 21st. Our publication aggregates and summarizes everything you need to know about all the recent hedge fund buys & sells in one convenient document and saves you a ton of time.

Written by hedge fund analysts, our quarterly newsletter includes:

- The latest portfolios of 25 top hedge funds (4 issues each year)

- Consensus list of the top buys & sells

- Expert commentary & analysis on each fund's moves

- In-depth equity analysis section: the investment thesis behind their picks

Hedge fund portfolios featured in our newsletter:

Seth Klarman (Baupost Group)
Warren Buffett (Berkshire Hathaway)
David Einhorn (Greenlight Capital)
Stephen Mandel (Lone Pine Capital)
David Tepper (Appaloosa Management)
Bill Ackman (Pershing Square Capital Management)
John Paulson (Paulson & Co)
Bruce Berkowitz (Fairholme Capital)
Chase Coleman (Tiger Global Management)
John Burbank (Passport Capital)
Leon Cooperman (Omega Advisors)
Dan Loeb (Third Point)
John Griffin (Blue Ridge Capital)
Lee Ainslie (Maverick Capital)
Julian Robertson (Tiger Management)
George Soros (Soros Fund Management)
Roberto Mignone (Bridger Management)
Philippe Laffont (Coatue Management)
Richard Perry (Perry Capital)
Larry Robbins (Glenview Capital)
Andreas Halvorsen (Viking Global)
Thomas Steyer (Farallon Capital)
Carl Icahn (Icahn Capital)
Barry Rosenstein (JANA Partners)
Alan Fournier (Pennant Capital)

*** FREE SAMPLE: Check out a full past issue by clicking here (.pdf)

See What Top Hedge Funds Are Buying & Selling: Subscribe Below

To pay by credit/debit card or PayPal, please click the 'subscribe' button below and read the next page carefully to select your method of payment.

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Friday, November 11, 2011

What We're Reading ~ 11/11/11

Memo to David Einhorn re: gold miners [Reformed Broker]

On Apple (AAPL) fatigue [Abnormal Returns]

4 major secular bear markets, 1900-2011 [Big Picture]

Five rising hedge fund stars to watch [Absolute Return + Alpha]

Viking Global to close to new investments [Absolute Return + Alpha]

Analyst antics at Green Mountain Coffee Roasters [CNBC]

How a cash-rich split could take Yahoo! to $41/share [Forbes]

Top 50 CIO salary list [Charles Skorina]

A view from the buyside [Distressed Debt Investing]

John Paulson hopes to profit from Delphi IPO [WSJ]

Tsang says Ackman will lose money on HKD bet [Bloomberg]

On hedging for financial advisors: rent-a-bear? [WSJ]

Long/short: cleaning up an absolute mess [FT Adviser]

Turmoil hits Lansdowne as hedgies falter [City AM]

Cardano seeks distressed debt opportunities [eFinancialNews]

Peter Thiel's founders fund raising up to $600 million [Bloomberg]

Hedge Fund Scout Capital Buys More Arcos Dorados (ARCO)

James Crichton and Adam Weiss' hedge fund Scout Capital just filed an amended 13G with the SEC regarding their position in Arcos Dorados (ARCO).

They've boosted their position size by almost 48% since the end of the second quarter. Scout now owns 10.78% of Arcos Dorados with 13,962,000 shares per portfolio activity on November 9th.

In other activity from the hedge fund, we detailed that they acquired total return swaps on Domino's Pizza.

Also, we've posted Scout's presentation on Williams (WMB) and Sensata Technologies (ST) from the Value Investing Congress.

Per Google Finance, Arcos Dorados is "is a McDonald’s franchisee. As of December 31, 2010, the Company operated or franchised 1,755 McDonald’s-branded restaurants, which represented 6.7% of McDonald’s total franchised restaurants globally. It operates McDonald’s-branded restaurants under two different operating formats, Company-operated restaurants and franchised restaurants."

Steve Cohen's SAC Capital Adds to GNC Holdings (GNC)

Steve Cohen's hedge fund firm SAC Capital has filed a 13G with the SEC on shares of GNC Holdings (GNC). In it, we see that SAC now has a 4.8% ownership stake in the company with 4,908,334 shares.

This marks a whopping 21,138% increase in their position size since the close of the second quarter because they only held 23,111 shares back then. The date of transaction requiring this filing was October 31st.

You can view some of SAC Capital's other portfolio activity here.

Per Google Finance, GNC Holdings is "is a holding company. It is a specialty retailer of nutritional supplements. Nutritional supplements include vitamins, minerals and herbal supplements (VMHS), sports nutrition products, diet products and other wellness products. GNC operates in three segments: Retail, Franchising, and Manufacturing/Wholesale."

Leon Cooperman on Risks to Equity Market Outlook: Invest For Kids Presentation

Yesterday, we posted up comprehensive notes from the Invest For Kids Chicago conference where numerous hedge fund managers presented their latest investment ideas. Omega Advisors' Leon Cooperman was one of the speakers and we're proud to present his slideshow presentation on risks to the equity market outlook below.

Cooperman pitched CHRS, KFN & ETFC at the event and you can click the link to read about his thoughts on those stocks. His actual slideshow, though, focused on economic data and risks to the equity market outlook.

Embedded below is Leon Cooperman's slideshow presentation from Invest For Kids Chicago (email readers click the link to come view it):

And for more picks from hedgies at this conference, head to notes from Invest For Kids Chicago.

Thursday, November 10, 2011

Notes From Invest For Kids Chicago: Lasry, Perry, Cooperman, Zell & More

Yesterday at Invest For Kids Chicago, numerous high profile hedge fund managers shared their latest investment ideas. The event had 800 attendees and raised $1.1 million (100% of the proceeds went to charities benefiting children). Please click the links below to view notes on each speaker's presentation:

Invest For Kids Chicago Notes:

Marc Lasry (Avenue Capital): Long General Motors & Hovnanian Bonds

Richard Perry (Perry Capital): GSE Junior Preferred Securities & RBS Tier 1 Securities

Leon Cooperman (Omega Advisors): Charming Shoppes (CHRS), KKR Financial (KFN), E*Trade Financial (ETFC)

Sam Zell (Equity Group Investments): Brazil's Investment Opportunity

Barry Rosenstein (JANA Partners): long McGraw Hill (MHP)

Thomas Russo (Gardner Russo & Gardner): Look abroad for opportunities, Nestle

Michael Milken (Milken Institute): Thoughts on Capital Markets

John Keeley (Keeley Asset Management): ITT Corp (ITT)

Barry Sternlicht (Starwood Capital Group): Likes Lowe's, Toll Brothers, NVR

Michael Elrad (GEM Realty Capital): Long Macerich (MAC)

For more of our coverage of the latest investment conferences, be sure to also head to notes & presentations from the Value Investing Congress.

Marc Lasry: Long General Motors & Hovnanian Bonds ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Marc Lasry of Avenue Capital gave a presentation on going long General Motors (GM).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long General Motors (GM)

Lasry pitched GM, saying that the company had the largest US market capitalization at $12.2 billion in the late 1950's. In 2000, GM's revenue was higher than Wal-Mart at $189 billion. Currently, GM equity trades at less than 1.0x EV/EBITDA (including JVs at 17.9B, cash 20.3B, Market Cap 41.7B, other assets 4.3B, 5.5B in debt, and 6.9B preferreds).

He compares GM now to Apple (AAPL) back when they needed $150 million from Microsoft (MSFT) or AAPL would have gone bankrupt. Since that loan from Microsoft, Apple many years later has become the largest company in the world at $350 billion.

Lasry says investors are focusing on timing re: GM and that's not the right way to do it. Ultimately, he acknowledges there's lots of risk out there. But the key question you have to ask, he says, is "are you getting paid enough to invest?"

The risk for GM is another recession and people buy fewer cars. As a true contrarian, he likes to buy when others aren't. He started buying the bonds when it was 2x EBITDA and you can get an even better entry point today. We just covered how David Einhorn's Greenlight Capital bought GM equity in the third quarter as well.

Long Hovnanian (HOV)

Lasry also mentioned that he liked homebuilder Hovnanian as rates and prices are both very low. The company has 350 million in cash, 1B inventory and 1B NOLs. He likes the 6 to 7% bonds at 35 with 20% yield. You get paid to wait and thinks you are covered and he'd rather get paid to wait with the bonds than take on more risk with the equity. Avenue Capital believes that the US GDP will have 1% growth next year and no double-dip recession.

You can view full notes from Invest For Kids Chicago here.

Richard Perry: Long GSE Junior Preferreds, RBS Tier 1 Securities (Invest For Kids Chicago Notes)

At Invest For Kids Chicago yesterday, Richard Perry of Perry Capital gave a presentation on going long GSE Junior Preferred securities as well as RBS Tier 1 Securities.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long GSE Junior Preferred Securities

Perry founded his firm 23 years ago and now manages $8 billion. He's only had 1 down year in 23 years. His first pick was to go long GSE Junior Preferred Securities as a highly asymmetric play.

Many people believe GSE's are the cause of the crisis and represent and endless black hole to the taxpayer and numerous politicians have called for their elimination. Perry takes the opposite view and believes GSE's will soon be breakeven and/or in a position to recapitalize themselves. He argues they provide necessary counter cyclical liquidity.

At 8.5 cents on the dollar, Perry thinks they offer asymmetric risk reward for huge upside. By changing the guarantee fee "a little bit," the CBO says they could raise $30 billion for each 10bps increase in fee and that could reopen the mortgage market and spur the economy (could happen over 2-3 years).

Long RBS Tier 1 Securities

Perry's other idea was going long securities of a bank that was at one point the largest in the world. In 2008 & 2009, RBS underwent a big housecleaning. Their Tier 1 securities have 'must-pay' dividends and 'may pay'. 'May pay' was shut off with the bailout through 2014 and trades at a 25-35% discount. This is the security he likes.

With Basel 3, core Tier 1 are likely to go away. All "real banks" will buy back to take off balance sheets. There's £10 billion of these and he expects them to turn on in 2012 (April for RBS and January for Lloyds).

Perry says that RBS' balance sheet is restructuring and you must analyze loan to deposits. US is roughly 95% and Italy is 120% to 150%. The UK has a government asset protection scheme where if RBS has a loss of ~60 billion, the government backstops other pool.

Systematically important banks trade at 7% yield on preferred stocks (Bank of America, Barclays, SocGen, BNP, UBS). If RBS pays the dividend they save 80 bps on funding (where better banks are) or 6 billion and pays 400 million in dividends which he says is good arbitrage.

For more of our coverage of Perry Capital, we've detailed Perry's investment thesis on Iron Mountain (IRM) as well as their thoughts on European markets.

You can view full notes from Invest For Kids Chicago here.

Leon Cooperman: Long Charming Shoppes, KFN & ETFC ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Leon Cooperman of Omega Advisors gave a presentation on going long Charming Shoppes (CHRS), KKR Financial (KFN), and E*Trade Financial (ETFC).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long Various Equities

Cooperman previously worked at Goldman Sachs for 25 years and made money in bottom-up stockpicking even when the market did nothing during the first 10 years of his career. He points out that currently everything in the markets is correlated and eventually this will change in time.

He agrees with Marc Lasry that we'll see low growth (1% GDP) and no double-dip recession. In order to dent unemployment, he argues we need to see 3% GDP growth.

Regarding the markets, Cooperman says that "people are light risk and that was why October was up so strong." He believes the market is discounting very conservative set of expectations and that the ECB will do what it takes to solve the Euro crisis. He believes there is no chance of a repeat of 2008.

Cooperman continues to preach that stocks are the best house in the neighborhood. This is the same message he presented at the Value Investing Congress. In particular, he likes three names:

Charming Shoppes (CHRS) - He likes the Layne Bryant division which services a niche of large women's apparel. He thinks the division is worth $700 million while the company has $227 million in cash and $140 million in debt and says it's probably worth 2x.

KKR Financial (KFN) - He likes the debt management arm of KKR as the 9% dividend is 2x covered by earnings. You get a 5-6% return plus the 9% dividend he says.

E*Trade Financial (ETFC) - He continues to like the improvement in the company's mortgage portfolio after their horrible foray into the market went so poorly years ago.

Additionally, Cooperman mentioned he likes the following stocks as well: Apple (AAPL), Boston Scientific (BSX), SLM (SLM), and Energy XXI (EXXI). For more from this manager, head to Cooperman's presentation from the Value Investing Congress here.

You can view full notes from Invest For Kids Chicago here.

Barry Rosenstein: Long McGraw-Hill (MHP) ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Barry Rosenstein of JANA Partners gave a presentation on going long McGraw-Hill (MHP).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long McGraw-Hill (MHP)

Rosenstein is a private equity style investor in public markets and he likes finding undervalued companies. He compares MHP to the classic 1980's style "sleepy business." The ratings segment sees $800 million of EBIT and has moat and pricing power. The financial services, Capital IQ and Ratings Direct segment has $175 million EBIT, while educational business segment has $300 million of EBIT.

He focused on the company's capital allocation as the educational business is more capital intensive but has a lower return on invested capital and garners the lowest multiple. He says the company has starved this business so they've lost market share.

He dislikes the bloated conglomerate structure and partnered with the Ontario Teachers' Pension Plan to go activist on MHP. Not surprisingly, the company is spinning out its education business and accelerating stock buybacks.

We've also previously detailed Rosenstein's slideshow presentation on MHP on why the company should split up. He says the company's cost cuts should be $200 million rather than $100 million and buyback $1 billion in 2011 and 2012 (15% of total shares).

The risk he pointed out was litigation issues of the ratings business and he said only a small fraction of claims are making it into court as the courts denied class action status to claims. He sees 40% upside to today's price.

You can view full notes from Invest For Kids Chicago here.

Thomas Russo: Investment Opportunities Abroad & Nestle (Invest For Kids Chicago Notes)

At Invest For Kids Chicago yesterday, Thomas Russo of Gardner Russo Gardner gave a presentation on investment opportunities abroad and going long Nestle (NSRGY).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Find Better Opportunities Abroad

Russo has 70% non-US exposure and he's been looking at European ideas that generate revenue outside of Europe. He lists the benefits of investing globally:

1. Capacity to continue to reinvest in pursuit of corporate wide ROICS
2. Freedom from dividend burdens
3. Corporate ethics / culture knowledgeable
4. Corporate governance
5. Global talent pool
6. Global best practices
7. Lower valuation available (Euro companies loathed)
8. Reduce translation risk

Nestle (NSRGY): He likes that they're focused on better foods. The secure global parent company is much cheaper than underlying national divisions.

Russo focused on how companies must have a chance to reinvest (strength in brands). He alluded to Kraft Foods and its domestic history where the core business lacked ability to effectively expand overseas. He says you must have long tail to expand abroad.

Pernod Ricard: They went to China with large capacity to grow and invest. 15% of profits are in China and it's family controlled. India is a huge opportunity for spirits.

SAB Miller: The company just purchased Fosters and local brewed beer is a big opportunity. Their sales are rising but EBITDA margin is down and.

He says that market volatility is a friend of the long-term investor. It permits more efficient capital reinvestment, offers M&A opportunity, and enhances share repurchase opportunities. He also says that investment managers have to have the capacity to suffer, in 1999 he was down 2% while the market was up significantly.

At the Leaders in Investing Summit earlier this year, Russo said he likes SAB Miller as well.

You can view full notes from Invest For Kids Chicago here.

Michael Milken: Thoughts on Capital Markets (Invest For Kids Chicago Notes)

At Invest For Kids Chicago yesterday, Michael Milken of the Milken Institute gave his thoughts on capital markets, credit, and a variety of other topics.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Thoughts on Capital Markets

Milken said that people "hardly ever learn anything" from history as it's nothing new in finance. History reflects "confirmed unteachability of mankind." He argues it was easy to predict where we are today due to unit labor costs.

The American Dream comes down to equal opportunity and equal access. Access to capital is based on ability. Prosperity = sum of finantical tech * (human capital + social capital + real assets). He says human capital is the US' largest asset and there's 3 ways to increase it: education, lifestyle, and integration.

Credit Nature

He also talked about how credit is not leverage. Most real estate loans are not investment grade and sovereign debt is the worst of all credit. Greece (recently) was in default 1 of every 2 years historically. 4th century BC Temple Delos took an 80% haircut on loans to Greek city states. Only 4 companies are AAA in the US. More money is lost on AAA investments than any other investment. No loan to real estate is a good loan.

You can view full notes from Invest For Kids Chicago here.

John Keeley Jr: Long ITT Corp ~ Notes From Invest For Kids Chicago

At Invest For Kids Chicago yesterday, John Keeley Jr. of Keeley Asset Management gave a presentation on going long ITT Corp (ITT) and some savings and loan companies.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long ITT Corp (ITT)

Keeley runs $5 billion focused on long-only in the small and mid-cap space. He focuses on spinoffs, cap assets, emerging from bankruptcy, below book value, S&L conversions, and distressed 'wayward' utilities.

There have been 849 spinoffs since 1895 (around 33 per year). He singled out ITT Corp as they focus on industrial products. It trades at 20 and they think it's worth 26+. People are ignoring it because they like the water business (Xylem Inc - water products & services, Exelies - defense & has the highest upside but also the highest risk because of defense spending questions).

Keeley also likes savings and loan companies but says you have to buy a basket in the small market cap arena. His best ideas are: Capitol Federal Financial (CFFN), Oritani Financial (ORIT), ViewPoint Financial Group (VPFG), Rockville Financial (RCKB), and Territorial Bancorp (TBNK).

You can view full notes from Invest For Kids Chicago here.

Sam Zell on Brazil's Investment Opportunity ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Sam Zell of Equity Group Investments gave a presentation on Brazil as a unique investment opportunity.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Brazil as a Compelling Investment

Zell focused on how globalization has been a part of everyone's vocabulary and that GDP in emerging markets is closing the gap. The demographics in Japan, Eastern Europe, Russia and Italy are poor. Brazil on the other hand has 25% middle class rising to 2/3rds middle class. The country has 180 million people with growth of 5 to 6%. They're self-sufficient in food, energy, water and has the scale to grow further.

Brazil also has an educated workforce and "free agent managements." The country has pent up demand as they're expanding housing and helping people enter the middle class. $60 billion of foreign capital went into Brazil, a "drop of water." Consequently, there's inflation and interest rates are high. People seek high returns with a willingness to pay. Zell says it "feels like the US in the 1950's."

Zell concludes that Brazil is full of unique investment opportunities with a focus on service and an aspirational and growing middle class. While Zell did not specifically mention it, we thought we'd point out the exchange traded fund many choose to invest in Brazil is via EWZ. Earlier this year, we highlighted how Xerion Fund's Dan Arbess had been investing in oil companies in Brazil.

You can view full notes from Invest For Kids Chicago here.

Barry Sternlicht Likes Lowe's, Toll Brothers, NVR ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Barry Sternlicht of Starwood Capital Group gave a presentation on going long.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Likes Lowe's, Toll Brothers, NVR

Sternlicht is a successful real estate and hotel investor who founded Starwood Capital Group in 1991 and has structured 40 transactions. He says themes to invest behind right now are residential land as it's a contrarian bet and return of the US residential market is a question of when, not if. During 2007 to 2009, household formation fell well below the historical trend.

He says the problem is appraisals because of distressed sales when bank dump properties. Housing affordability is a good thing and we're building 3800-400k new homes when the real need is around 1-1.2 million. When people finally start to move there will be "pent up demand."

He likes certain homebuilders such as : Toll Brothers (TOL), Lennar, DR Horton, and NVR (NVR). TOL is his favorite along with NVR, which has limited inventory and turns its inventory better (Ryan Homes).

He says to avoid Beazer (BZH) and Hovnanian (HOV) because they could go bankrupt depending on how long the turnaround takes. This is interesting because Avenue Capital's Marc Lasry said he was long Hovnanian bonds at the same conference.

Lowe's (LOW): Sternlicht also likes LOW because the company owns 90% of its stores and benefits from housing demand. It has a diverse revenue stream and the internet can't replace things like home remodels because you need to see in-person what you're purchasing.

He notes that management is willing to repurchase 70% of share buybacks in 4 years (reminds him of Teledyne). The company is free cashflow positive and has a 2.5% dividend yield and trades at 6.5x EV/EBITDA. Pershing Square's Bill Ackman also likes LOW he revealed at a different conference yesterday.

You can view full notes from Invest For Kids Chicago here.

Michael Elrad Likes Macerich (MAC): Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Michael Elrad of GEM Realty Capital gave a presentation on going long Class A malls and Macerich (MAC).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long Macerich (MAC)

Elrad likes investing in both private and public real estate. He likes top down real estate themes, bottom-up investing (long and short), and hedging. His top down theme is Class A malls. 90% are owned by public companies like Simon Property Group (SPG), Westfield, Macerich (MAC), and Taubman (TCO). Leases are 10 years in tenure and 6.3% nominal cap rates and 5% for private.

His idea is to go long Macerich (MAC). It has a 4.4% dividend versus 3.7% for its peers. It is 84% Class A malls and has reduced leverage to 45% down from 84% before the recession. It has 4% more of its holdings in Class A malls than its competitors and is likely the next REIT to be added to the S&P 500.

MAC trades at a 10% discount to its peers and has a de-staggered board and is an acquisition candidate. You can hedge if you want to with non class B malls/strip center REITS - he'd hedge 50 cents for every 1 dollar of MAC.

He likes malls because there's often Apple (AAPL) stores in them. He says they've been a success because upscale malls drive people who can touch and understand products and he feels this is a reason there's not internet risk (market share).

You can view full notes from Invest For Kids Chicago here.

Wednesday, November 9, 2011

Chase Coleman's Tiger Global To Reduce Size, Adds Feroz Dewan as Key Man

Chase Coleman's Tiger Global has decided to offer a special redemption window, the hedge fund noted in its third quarter letter to investors.

Tiger Global currently has $6.8 billion under management (AUM) and their rationale for decreasing their AUM is as follows:

"As the Fund's assets have grown, it has become increasingly difficult to source attractive short opportunities and size them appropriately. It has also become challenging to take meaningful long positions in certain smaller capitalization companies, particularly in emerging markets."

Feroz Dewan Added As Key Man

The second bit of major news from Tiger Global is that they've added co-portfolio manager Feroz Dewan to their key man clause in addition to founder Chase Coleman. Tiger writes that, "Chase is in good health and is in no way changing his role or commitment to the business on a day-to-day basis." This becomes effective at the start of 2012.

Portfolio Notes

On the short side of their portfolio, they've seen most success in the Media & Internet and Retail Consumer sectors. In terms of positioning, Tiger Global has 139% gross exposure with 45% net long exposure. To see some of the hedge fund's investments, we've posted up Tiger Global's portfolio activity here.

For more hedge fund Q3 letters, we posted David Einhorn & Greenlight Capital's letter yesterday.

East Coast Asset Management on the Fear of Bubbles: Q3 Letter

Christopher Begg is out with East Coast Asset Management's third quarter letter to investors. In it, he tackles the latest global macro mess and how the fear of bubbles has captivated markets.

While many equity investors have begun to place a lot of focus on macro events (even betting on macro outcomes), he prefers to stick to his value investing focus. That's not to say that Begg disregards the global macro, though. Last time around, we highlighted how East Coast sees heightened and prolonged inflation ahead.

Instead of letting global macro events dominate their investment strategy, they've simply used macro analysis as a tool to reflect on how various scenarios effect businesses and investments.

Begg aptly describes the current status of financial markets by writing:

"There is a very large disconnect between the prevailing emotional sentiment and truth. The vast majority of investors are tightly huddled in a consensus of uncertainty and fear. Fundamentals and merit appear in solitude at the edge of chaos ... We sadistically love these environments for the bargains they produce."

And he also touches on some of his latest portfolio movement:

"Our new holding in our core portfolio has recently emerged from bankruptcy with a much improved balance sheet. It is in an industry which has been materially improved as capacity has been removed and a more rational shareholder mindset adopted. We bought this business at a free cash flow yield above 15% from current earnings."

As always, East Coast's letters are better read as a whole than summarized and it is embedded below (email readers click the link to read):

Since East Coast's past letters are often focused on timeless educational aspects of investing, we'd recommend checking out their pieces on competitive advantage and gaining an investment edge.

Tuesday, November 8, 2011

Kyle Bass' Hayman Capital Buys MGIC

Kyle Bass' hedge fund Hayman Capital Management just filed a 13G with the SEC regarding MGIC Investment Corp (MTG). This is a brand new position for them as they did not show a stake at the end of the second quarter.

Hayman now owns 10,047,937 shares of MTG which represents a 4.9% ownership stake in the company due to trading on October 31st. MTG is a provider of private mortgage insurance in the US.

It appears as though Bass is using this as a proxy to play a housing recovery. According to the WSJ, Bass likes that MGIC has a positive equity position and believes it will be one of the survivors after the whole housing mess subsides.

It also appears as though this is a longer-term holding for Bass as he thinks housing is still 2-3 years away from bottoming but that any losses between now and then would be modest.

In other activity from Hayman Capital, we've also covered Bass' bet against Japanese Government Bonds (JGBs).

Steve Mandel's Lone Pine Capital Buys & Wyndham Worldwide

Steve Mandel's hedge fund firm Lone Pine Capital just filed two separate 13G's with the SEC regarding shares of Wyndham Worldwide (WYN) and (NTES). The hedge fund previously owned stakes in both, but has been adding to its positions in each as of late. (NTES)

Lone Pine's biggest buy between the two was NTES as they ramped their position size up by 3511% since the end of Q2. Mandel's firm now shows a 5.5% ownership stake in NTES with 177,328,000 shares (based on direct ownership of 7,093,120 ADR's) due to portfolio activity on October 26th.

Per Google Finance, is "is a Internet technology company. NetEase provides online game services to Internet users through the in-house development or licensing of massively multi-player online role-playing games (MMORPGs), including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II and Datang, as well as the licensed game, Blizzard Entertainment’s World of Warcraft.."

Wyndham Worldwide (WYN)

Lone Pine boosted its holdings in WYN by 22% since the end of the second quarter. The hedge fund now shows a 5.4% ownership stake in Wyndham worldwide with 8,259,034 shares due to trading on October 26th.

From Google Finance, Wyndham is " a hospitality company. The Company offers individual consumers and business customers a range of hospitality services and products across various accommodation alternatives and price ranges through its brand portfolio. Its operations are grouped into three segments: lodging, vacation exchange and rentals and vacation ownership. It has more than 20 brands, which include Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8, Howard Johnson, Wyndham Rewards, Wingate by Wyndham, Microtel, RCI, The Registry Collection, ResortQuest, Landal GreenParks, Novasol, Hoseasons, cottages4you, James Villa Holidays, Wyndham Vacation Resorts and WorldMark by Wyndham."

We've also covered some of Lone Pine's other portfolio activity here.

David Einhorn Buys CBS, General Motors & Marvell Technology: Q3 Letter

David Einhorn's hedge fund Greenlight Capital just sent out its third quarter letter to investors and in it they reveal some of their latest portfolio activity. Einhorn's firm initiated brand new positions in CBS Corp (CBS), General Motors (GM), and Marvell Technology (MRVL) in the third quarter.

CBS Corp (CBS)

Greenlight likes CBS due to its growing retransmission fees, monetization of their content library, as well as the potential for increased advertising spending by clients. The hedge fund bought CBS at $20.79 per share (less than 10x their estimate of 2012 earnings) and it now trades just north of $25.

General Motors (GM)

The hedge fund writes on their new position in the largest automaker in the US that IPO'd last year: "GM is being priced by the market as a cyclical company trading at less than 6x this year's earnings. While some may see it as normal to value cyclicals at low multiples of peak earnings, we believe that 2011 is not a peak and, in fact, is below mid-cycle." They bought shares at $25.78 and GM currently trades around $24.

Marvell Technology (MRVL)

Einhorn's firm believes that hard disk drives won't become extinct anytime soon (the major bear case). They think the company will buy back 12% of its float and Greenlight bought at $14.35 per share (currently trades around $14.40).

The letter also follows up on Einhorn's short case on Green Mountain Coffee Roasters (GMCR) from the Value Investing Congress. Lastly, Greenlight mentions that they've sold out of their long positions in Pfizer (PFE) and BP (BP) during the quarter and covered their short of Amedisys (AMED).

Greenlight's Top Holdings at the end of Q3 in alphabetical order:

Apple (AAPL)
Market Vectors Gold Miners (GDX)
Microsoft (MSFT)
Vodafone Group (VOD)

Embedded below is Greenlight Capital's Q3 letter:

For more from Greenlight Capital, we detailed last week how Einhorn was buying gold miners.

Wednesday, November 2, 2011

Dan Loeb's Third Point Q3 Letter 2011

Dan Loeb's hedge fund firm Third Point just sent out their third quarter letter to investors for 2011. In it, they talk about their low net exposures and how they've protected capital through the volatility.

This morning we pointed out how Third Point increased exposure in October. Their letter says that they've "added some beta back to the portfolio, primarily by covering shorts, nibbling at credit, and adding to select long positions." Third Point has had a lot of dry powder and has been waiting to deploy it.

Asset Backed Securities

We've often mentioned Third Point's exposure to asset backed securities, but this past quarter's letter gives us some color as to their positions:

"Our portfolio still consists primarily of dented prime “Re‐Remic” securities, which are priced at a mid‐teens yield, and seasoned subprime securities, which are priced at a high‐ teens yield. We have a small number of CMBS bonds and student loan ABS. The cash carry on our mortgage portfolio is about 60‐70 BPS per month."

Embedded below is Third Point's Q3 letter (email readers click the link to come read it):

For activity from this hedge fund in October, head to our post this morning on Third Point's Lehman Brothers position.

Dan Loeb's Third Point Shows Lehman Brothers as a Top Position

Dan Loeb's hedge fund Third Point updated investors on their latest holdings and exposures for the end of October. Third Point lists Lehman Brothers Holdings as a top position this month, one that previously has not appeared in the upper echelon of their portfolio.

Third Point's Top Positions

1. Yahoo! (YHOO)
2. Gold
3. Delphi Corp
4. Lehman Brothers Holdings
5. Sara Lee (SLE)

Also worth noting is that Sara Lee has taken the place of Technicolor from last month as their fifth largest stake. The company recently sold its North American coffee business, something the hedge fund anticipated when we highlighted Third Point's Sara Lee investment thesis.

Third Point's top three positions remain unchanged from last month. You can view Loeb's bull case for YHOO here.

Increased Equities Exposure

Third Point was up 0.8% in October and 0.9% for the year at that time. Equities rallied furiously in October as the S&P 500 was up 10.9% and last month it seems Loeb's firm was hurt by their low net exposure which we've highlighted previously.

And speaking of exposure, Third Point did increase their net long position in equities to 22.9%, up from 15.6% net long the month prior. They have their largest net long exposure to the technology and energy sectors.

In credit, they are 18.4% net long as they continue to have their largest net long exposure in asset backed securities and continue to be net short government issues. Their overall net long exposure in credit increased 2.8% from last month.

Geographically speaking, Third Point is net long the Americas by 57%, net short EMEA at -5% and net short Asia at -2%.

David Einhorn Buys Gold Miners, Sells Some Physical Gold

David Einhorn of hedge fund Greenlight Capital recently spoke on the conference call for the reinsurance company he's associated with, Greenlight Capital Re (GLRE). Einhorn manages the reinvestment portfolio and gave some comments on his latest portfolio positioning:

Greenlight Buys Gold Miners

The most notable change was a shift in his gold related investments. Back in 2009 we highlighted Einhorn's physical gold position. This time around, Einhorn has been re-allocating some of his physical gold stake into gold miners. He's been buying miners via GDX the exchange traded fund.

The rationale for such an adjustment: "Throughout the course of this year, a substantial disconnect has developed between the price of gold and the mining companies. With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk adjusted returns even if gold does not advance further. Of course, since we believe gold will continue to rise, we expect gold stocks to do even better."

Greenlight Increases Equity Exposure

Einhorn also mentioned that he boosted net long exposure to 35%. On the markets in general, the hedge fund manager still sees pockets of opportunity, saying, "Many equities, especially in large capitalization companies appear quite attractive. This is balanced by the continuing impact of dangerous macro policies. Most of our portfolio is assembled from the bottom up and we continue to see reasonable opportunities on both sides of the portfolio."

Einhorn Sells Pfizer (PFE), Adds to Other Longs

Another notable move from Greenlight in the past quarter was the sale of their longstanding position in Pfizer (PFE) due to better investment opportunities elsewhere. During the volatility and market dip, Einhorn was covering some shorts, adding to existing long positions, and starting new stakes in the technology and auto sectors.

We also detailed Einhorn's presentation on shorting Green Mountain Coffee Roasters (GMCR) from the Value Investing Congress as he outlined the company's accounting gimmicks.

For all aspiring fund managers out there, be sure to check out David Einhorn's recommended reading list.

Monday, October 31, 2011

Invest For Kids Chicago: Marc Lasry, Richard Perry, Barry Rosenstein & More

We want to let readers know about a great upcoming investment conference in Chicago. Invest For Kids Chicago donates 100% of the money to children's charities and gives you a chance to hear investment ideas from top managers. Last year the event raised over $1 million.

When: November 9th, 1:30 PM to 6PM
Where: Chicago, IL at the Harris Theater

Marc Lasry (Avenue Capital)
Richard Perry (Perry Partners)
Barry Rosenstein (JANA Partners)
Michael Milken (Milken Institute)
Leon Cooperman (Omega Advisors)
Sam Zell (Equity Group Investments)
Thomas Russo (Gardner Russo & Gardner)
Barry Sternlicht (Starwood Capital Group )
Michael Elrad (GEM Realty Capital)
John Keeley Jr (Keeley Asset Management)

You can register for the event by clicking here. We've also embedded the sign-up form below:

So many conferences take place on the east or west coasts, so this is a great event for those of you in the Midwest. We've also embedded the flyer for the event below:

Head to to register as it's for a great cause and a chance for you to hear the latest ideas from top money managers (some of whom don't speak in public that often).

Bill Ackman Goes Activist on Canadian Pacific Railway (CP)

Bill Ackman's hedge fund Pershing Square Capital Management has disclosed an activist position in Canadian Pacific Railway (CP) via a 13D filed with the SEC.

This is a brand new position for the hedge fund as they now own 12.2% of Canadian Pacific with 20,659,504 shares due to portfolio activity on October 18th.

Just over 2.6 million of those shares are represented by a call option with a strike price of $30.55 and an expiration date of April 27th, 2012. Shares of CP currently trade around $63.

Regarding why Ackman purchased CP shares, the 13D filing simply states that he thought shares are undervalued and an attractive investment.

This comes after Ackman recently pitched another investment idea at the Value Investing Congress (see his full presentation here).

Per Google Finance, Canadian Pacific Railway "has 14,800-mile network extends from the Port Metro Vancouver on Canada’s Pacific Coast to the Port of Montreal in eastern Canada, and to the United industrial centers of Chicago; Detroit, Michigan; Newark, New Jersey; Philadelphia; New York City and Buffalo, New York; Kansas City, Missouri, and Minneapolis, Minnesota. Its network is consisted of four primary corridors: Western, Eastern, Central and the Northeast the United States. Its business includes bulk, which include grain, coal, and sculpture and fertilizer; merchandise, which include forest products, industrial and consumer products, and automotive; and intermodal."

Pershing Square has been actively buying over the past few months as we detailed how the hedge fund bought $600 million worth of investments in August alone.

Jeffrey Altman's Owl Creek Boosts Cigna Position

Jeffrey Altman's hedge fund Owl Creek Asset Management filed a 13G with the SEC on their position in Cigna (CI). Due to portfolio activity on October 27th, Owl Creek has disclosed a 5.14% ownership stake in Cigna with 13,896,771 shares.

This is an increase of almost 66% in their position size. At the close of the second quarter, they only owned 8,396,087 CI shares.

Owl Creek Asset Management also recently disclosed a new position in Lone Pine Resources (LPR). They acquired this position via their stake in Forest Oil (FST) which distributed a special dividend of LPR shares to FST shareholders.

In other portfolio updates from this hedge fund, we've also detailed how Owl Creek has been active in YRC Worldwide (YRCW).

Per Google Finance, Cigna is "a global health service organization with subsidiaries that are providers of medical, dental, disability, life and accident insurance and related products and services. In the United States, these products and services are offered through employers and other groups and in selected international markets, CIGNA offers supplemental health, life and accident insurance products, expatriate benefits and international health care coverage and services to businesses, governmental and non-governmental organizations and individuals."

Soros Fund Management Discloses WebMD Convertible Bond Position

George Soros' firm, Soros Fund Management, filed a 13G with the SEC in regards to shares of WebMD (WBMD). Due to activity on October 13th, Soros disclosed a 5.59% ownership stake in WBMD with 3,471,885 shares.

This is an increase in their exposure to WebMD. However, it must be noted that Soros actually sold common stock from the end of Q2 until present. They boosted their exposure to the name via acquiring convertible bonds (2.25% due March 31, 2016 and 2.50% due January 31, 2018).

You can view other recent portfolio activity from Soros here.

Per Google Finance, WebMD is "a provider of health information services to consumers, physicians and other healthcare professionals, employers and health plans through its public and private online portals, mobile platforms and health-focused publications."

Patrick McCormack's Tiger Consumer Starts Liz Claiborne Stake

Patrick McCormack's hedge fund Tiger Consumer Management recently filed a 13G with the SEC regarding shares of Liz Claiborne (LIZ). They reported a 6.59% ownership stake in LIZ with 6,237,700 shares.

This is a brand new position for the hedge fund as they did not own shares upon close of the second quarter. Tiger Consumer Management passed the 5% ownership stake threshold requiring an SEC filing on October 12th.

Tiger Consumer is one of the many firms seeded by Tiger Management founder, Julian Robertson. And as its fund name implies, Tiger Consumer focuses primarily on the consumer sector.

Per Google Finance, Liz Claiborne "designs and markets a portfolio of retail-based brands, including JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX. It also has a group of department store-based brands with consumer franchises, including the LIZ CLAIBORNE and MONET families of brands and the licensed DKNY JEANS and DKNY ACTIVE brands. It operates in three segments: Domestic-Based Direct Brands segment, International-Based Direct Brands segment and Partnered Brands segment."

Friday, October 21, 2011

Alan Fournier's Pennant Capital Buys More Universal Stainless & Alloy Products (USAP)

Alan Fournier's hedge fund Pennant Capital filed an amended 13G with the SEC regarding their position in Universal Stainless & Alloy Products (USAP). In it, they disclose a 10.04% ownership stake in USAP with 685,770 shares.

This marks a 27% increase in their position size since the end of the second quarter when Pennant owned 538,400 shares. We've covered the rest of Pennant's holdings in our Hedge Fund Wisdom newsletter.

About Pennant Capital

Prior to founding Pennant Capital, Alan Fournier was responsible for the global equitiy portfolio for David Tepper's Appaloosa Management. He pursues a long/short equity strategy and graduated from Wentworth Institute of Technology's Mechanical Engineering program.

About Universal Stainless & Alloy Products

Per Google Finance, Universal Stainless & Alloy Products is "manufactures and markets semi-finished and finished specialty steel products, including stainless steel, tool steel and certain other alloyed steels. The Company’s manufacturing process involves melting, remelting, heat treating, hot and cold rolling, machining and cold drawing of semi-finished and finished specialty steels. The Company’s products are sold to rerollers, forgers, service centers, original equipment manufacturers (OEMs) and wire redrawers."

Hedge Fund Scout Capital Acquires Total Return Swaps on Domino's Pizza

James Crichton and Adam Weiss' hedge fund Scout Capital just filed a Form 3 and Form 4 with the SEC regarding their position in Domino's Pizza (DPZ).

On October 18th, Scout acquired various total return swaps with expiration dates of September 6th, 2012 and November 16th, 2012. The conversion/exercise price of these derivatives range from $23.38 to $28.94 and in all these swaps seem to represent over 750,000 shares. DPZ currently trades around $31.40.

The footnotes of the filings also indicate that Scout has now become a 10% owner of Domino's Pizza (DPZ) as a result of the company's buyback program.

For more from this hedge fund, head to Scout's presentation on Williams (WMB) and Sensata Technologies (ST) from the Value Investing Congress.

Per Google Finance, Domino's Pizza is "is a pizza delivery company in the United States. The Company operates its business in three segments: domestic stores, domestic supply chain and international. Its brands include the Domino’s Pizza, Domino’s HeatWave hot bag, Domino’s American Legends pizzas and Domino’s BreadBowl Pasta and Cinna Stix. Domino’s earns its revenue by retail sales at its franchise stores, which generate royalty payments and supply chain revenues to the Company. DPI’s also generates earnings through retail sales at its Company-owned stores."

What We're Reading ~ 10/21/11

Steve Eisman to launch new fund in January [FINalternatives]

The case for Bank of America (BAC) as a 'terminal short' [Zero Hedge]

Why Netflix's Reed Hastings might be getting desperate [Benzinga]

The growing audience for dividends [Abnormal Returns]

Why eBay should spin-off PayPal [Motley Fool]

Is Klarman's Baupost seeking cash from investors? [Institutional Investor]

Fernandez leaves Fairholme Fund [Morningstar]

Uncovering hedge fund skill from holdings they hide [SSRN]

Paulson tells investors 'we made a mistake' [Dealbook]

Thaler's JAT Capital up 31% this year [SF Gate]

Scott Forstall, the sorcerer's apprentice at Apple [BusinessWeek]

Hedge fund guru warns of period of high inflation [Yorkshire Post]

Analyzing info from the Groupon IPO roadshow [Felix Salmon]

Kindger Morgan to buy El Paso for $21.1 billion [Dealbook]

Thursday, October 20, 2011

Lee Hobson's Highside Capital Doubles Clearwire (CLWR) Stake

Lee Hobson's hedge fund Highside Capital filed a 13G with the SEC regarding shares of Clearwire (CLWR). In it, Highside reveals a 5.5% ownership stake in CLWR with 16,174,400 shares.

This marks a 129% increase in their position size since the end of the second quarter.

Clearwire Volatile Lately

Highside crossed the 5% threshold that required disclosure to the SEC on October 7th, the day Sprint (S) held their investor day .
This is relevant because that day Sprint signaled that they might cease purchases of CLWR's services after next year. Sprint owns almost 54% of Clearwire equity (but just 49.7% of voting rights).

This news, coupled with a CLWR downgrade from Moody's on October 14th, triggered speculation that Clearwire could possibly miss interest payments and caused the company's bonds to plunge.

This is the second major hedge fund we've seen take a sizable stake in Clearwire (CLWR). We highlighted how Larry Robbins' Glenview Capital bought the stock and you can read their CLWR investment thesis here.

About Highside Capital

Prior to founding Highside, Hobson was at Lee Ainslie's Maverick Capital. Highside employs a long/short equity strategy and invests in public markets. Hobson received his MBA from Harvard Business School and attended undergrad at Princeton University.

About Clearwire

Per Google Finance, Clearwire is "a provider of fourth generation (4G) wireless broadband services. Clearwire builds and operates next generation mobile broadband networks that provide high-speed mobile Internet and residential access services, as well as residential voice services. Its 4G mobile broadband network provides a connection anywhere within its coverage area."

For more hedge fund updates, be sure to check our extensive notes from the Value Investing Congress.

Eric Mindich's Eton Park Capital Adds to 3Legs Resources Position

Eric Mindich's hedge fund Eton Park Capital has added to its position in London listed 3Legs Resources (LON: 3LEG). Due to trading on October 9th, Eton Park now owns 5.58% of 3LEGS' shares.

We originally reported when Eton Park took its initial position in 3Legs when they bought stock via the placing on the AIM market in June 2011. They've since acquired an additional 2.1% of the company.

Per Google Finance, 3Legs Resources is "engaged in the exploration, evaluation and development of oil and gas targets, from unconventional resource plays. The Company has six exploration and prospection licenses covering approximately 4,387 square kilometers (1,084,000 acres) (gross) in the onshore Baltic Basin."

In other activity from this hedge fund, we also detailed Eton Park's position in MSCI.

Odey Asset Management Buys More Lookers

Crispin Odey's UK-based hedge fund, Odey Asset Management, has added to its holdings of car dealer Lookers (LON: LOOK). Due to a filing made on October 13th, Odey now owns 5.19% of Lookers shares.

Odey has fancied UK car dealers for some time. In Crispin Odey's January 2010 letter for his flagship fund, Odey European, he said that he in particular liked London listed car dealers Pendragon and Lookers. Odey wrote,

"I have bought well managed businesses, where management have taken the necessary action to live in a world in which demand remains excessively weak. Where management have demonstrated the ability to take advantage of further dislocation –for instance if interest rates were to rise, they would be able to exploit this as an opportunity to buy their rivals.

In the UK this has put me into the likes of Lookers and Pendragon, both car dealers. Current new car sales are running at 1.8 million cars a year, some thirty percent below the replacement rate of 2.8 million cars. Money is being made in used car sales and servicing, both of which are benefitting from the ageing of the fleet. On a P/E for this year of 5x, I find shares that are on discount to a level of profitability which already discounts the worst. That double discount gives me a great deal of comfort.”

Odey Likes Pendragon Too

Since then, Lookers shares have traded more or less sideways whilst Pendragon shares have lost over half of their value. As Pendragon's shares fell in 2010 and 2011, Odey doubled-down, building a large ownership stake of 21.09% of the company. Odey's last purchase of Pendragon stock was in mid-August 2011.

Other Recent Activity

Odey also recently added to his holdings in London listed business services company RSM Tenon. You can also view Odey's latest market outlook.

About Lookers

Per Google Finance – “Lookers plc is a motor retail company. It is a multi-franchise main dealer group with franchises for many car manufacturers. It operates 122 retail outlets across 32 franchises operating from 73 locations. And was organized into two main business segments: motor division and parts distribution."

Tuesday, October 18, 2011

Value Investing Congress: Slideshow Presentations & In-Depth Notes

Our Value Investing Congress notes and summaries from day 1 have been completely replaced with the actual slideshow presentations and/or in-depth notes from each speaker. We've also posted up links for day 2's speakers. Click each hedge fund manager's name below to view this brand new material:

Value Investing Congress Slideshow Presentations & In-Depth Notes

Bill Ackman (Pershing Square Capital): Long Fortune Brands Home Security (FBHS)

David Einhorn (Greenlight Capital): Short Green Mountain Coffee Roasters (GMCR)

Leon Cooperman (Omega Advisors): Long Apple (AAPL) & E*Trade Financial (ETFC)

Jim Chanos (Kynikos Associates): Beware the global value-trap

Adam Weiss & James Crichton (Scout Capital): Long Sensata Technologies (ST) & Williams (WMB)

Boykin Curry (Eagle Capital): Long Aon (AON) & Goldman Sachs (GS)

Bernard Horn (Polaris Capital): Traveling the world to uncover value

Joel Greenblatt Gotham Capital: The big secret for value investors

Guy Gottfried (Rational Investment Group): long The Brick (TSE:BRK)

Vladimir Jelisavcic (Longacre Fund): DryShips (DRYS) Convertible Bonds

Timothy Hartch (Brown Brothers Harriman): Dentsply (XRAY) & Energy Solutions (ES)

Alexander Roepers (Atlantic Investment Management): Anticipating more M&A

Whitney Tilson & Glenn Tongue (T2 Partners): Long Berkshire Hathaway (BRK.A) & J.C. Penney (JCP)

Want more hedge fund coverage? Don't miss out: get our free updates via email or via RSS reader.

Bill Ackman: Long Fortune Brands Home Security (Value Investing Congress Presentation)

At day two of the Value Investing Congress, Bill Ackman of hedge fund Pershing Square Capital gave the case for going long Fortune Brands Home Security (FBHS) in a presentation entitled "You'll Want to Hear This."

Be sure to check out all our notes from the Value Investing Congress.

Bill Ackman (Pershing Square Capital)

Embedded below is his full slideshow presentation:

Ackman has spoken every year for the seven years of the conference's existence. He runs $10 billion now and has an 8-person investment team. His analyst (who presented it) generated the idea.

"A Homespun Fortune"

Fortune Brands Home & Security (FBHS): Makes faucets, kitchen/bath cabinets. Was just spun off from Fortune brands 2 weeks ago. Own Moen, #1 faucet brand in NA, security Master Lock, #1 Padlock brand in US. Secular winner: industry leader with scale, strong management team. Cyclical winner: when the housing market normalizes, EBITDA can triple from here due to operating leverage. “Platform business” as it can roll-up small adjacent categories. Key is housing starts need to improve, if it does, stock can go to $22, up 70% from today’s price of $15. Classic spinoff, being sold by Fortune Brand investors who don’t want this type of business.


Plumbing. Moen faucets. Has held up throughout downturn- low-ticket items that can really improve look of the bathroom, also high install base for replacement sales.

Cabinets. Excess capacity, most vulnerable to housing. Barely profitable while peers are losing money.

Security. Master Lock business. Stable demand in the core padlock market. Can market more aggressively now that it’s separate from Fortune Brands. Windows & Doors. Very leveraged to new home building market. Barely profitable.

2007 had 14% EBITDA margins, now only 5%. But plumbing & security business has, 50% of Revenue, but 80% of EBIT. Currently the Cabinets and Windows/Doors are underperforming due to housing market. If capacity gets reduced in housing sensitive segments, they could get to a 10% EBIT margin overall. Good balance sheet, can make some acquisitions.

Housing market review: Housing starts are at the lowest level in the last 40 years. This is the fifth year of the housing recession, at 600k housing starts. Excess supply today is 2 – 2.5M units. 1M needed every year, building only 600k, 400k reduction of supply every year implies 5.6 years to remove excess supply.

FBHS upside case: With housing recovery- EBITDA doubles. If no recovery, company will have to cut out costs to get back to 10% EBITDA margins. Trades at 9.7X LTM EBITDA, 23x P/E. Looking forward 6.4x 2012E EBITDA.

Whole story depends on how fast housing recovers. Range of stock price outcomes: No recovery: $14, no upside. Partial recovery: $18, 35% upside. Huge recovery: $27 per share, 110% upside.

Q&A Session:

1. Why is FBHS the right way to play the housing cycle? “Low risk way to play it, if we’re wrong, we don’t lose much money.”

2. Ackman says election could be a potential catalyst to help consumer confidence; renting is more expensive than buying in some markets. Says recovery happens much more quickly than 5 years.

3. Question on C: stock off 30% from when started buying the stock, mistake was not using a higher discount rate for the uncertainty of the stock.

4. Talking up the Hong Kong Dollar options - only 1% of the fund, but if they’re right in a year, make 60x their money.

5. JCP: real estate isn’t core to the story. Idea is for management to improve the business. “Retail, when you get it right, can be close to the best business. Look at the wealthiest people in every country in the world- the richest are often retailers.” If you get retail right, it can be an incredible business. Most relevant thing is this “incredibly smart, charismatic guy” is going to run the business. Perfect training for the job- 15 years at Target, then building Apple stores. “Ron is going to re-invent the department store.” Incentives in line, no liquidity on his options for 6 years, and bought $50M of stock himself. Ackman now has 26% of JCP.

6. Justice Holdings. Trades on LSE. “SPAC.” Cash shell. Ackman put up $450M. Idea is to find a business to buy and effectively take public.

7. Howard Hughes, from $35 to $77, back to the $40s- any comment? Owns Ward in Honolulu, South St Seaport, GGP HQ business in Chicago, book value about $50 on a very conservative estimate, zero net debt. Good board and management. “A collection of assets that will do well over time.”

8. His business model is to take big stakes in companies. He has made a lot of money for co-investors, who he doesn’t even know. When he’s in a stock, it sends a very strong message to boards because they know that there are many other investors behind him. Allows him to have influence on how management operates the company.

In addition, large stakes allows him to get a good CEO, who they can “protect” from Wall Street. They get some control without paying a control premium. Free riders actually help him. Better than LBO firms, because they have to pay a huge premium over public market price for control. They also have a private, illiquid, levered position. Ackman’s is less liquid than typical public stock, but much cheaper entry point.

“People making money off our strategy is part of the business, and healthy.” (This is the second time we’ve heard him say this - it’s really the key to what he does.) Tilson piled on, and said Ackman took the best advantages of both Hedge Funds and Private Equity. Says Ackman made more money faster than anyone did in history.

For more from the Pershing Square manager, be sure to head to Ackman's presentation on the Hong Kong Dollar as well as read about how Pershing bought $600 million worth of investments during the August volatility.

Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.

Scout Capital: Long Williams (WMB) & Sensata Technologies (ST) ~ Value Investing Congress Presentation

At day two of the Value Investing Congress, Adam Weiss & James Crichton of hedge fund Scout Capital gave the case for a long of Williams (WMB) and Sensata Technologies (ST) in a presentation entitled "Two Investment Opportunities."

Be sure to check out all our notes from the Value Investing Congress.

Scout Capital

Adam Weiss: long Williams Co (WMB)

Three parts: pipelines, midstream producer of LNG, E&P. Feb new CEO breaking up the company. Stock $24, Base case $37, based on infrastructure business being revalued on break up, reserves is $9 per share for E&P, “hidden asset” worth $3/share. Upside case is total $47-50.

*Note: In the past we saw large hedge fund buying in WMB and analyzed it in a past issue of our Hedge Fund Wisdom newsletter.

Business quality: “good, not great”

Business model: inevitable product/service, benefits of scale, favorable competitive environment as pipelines take time to build, WMB is low cost provider.

Sustainable growth: 7-10% EBITDA CAGR over 5 years. Well-located pipelines, in most cases, coal to gas switching is required by law and Transco (WMB) has the only pipelines there.

Management: New CEO, break-up of company within months of taking over, strong performance record in the past – he ran the WMB midstream business prior to this and it had the highest growth of any division.

Street misunderstanding: spin/break-up of a conglomerate- different types of investors in the stock- E&P and infrastructure are at odds with each other. Sell-side and buy-side coverage issues. New CEO, new culture. Hidden asset- the off-gas processor in the Canadian gas sands. By breaking up the company, shifts focus from EBITDA to multiples to dividend power, yield and NAV.

Valuation: Sum of the parts: Base case $37, bull case $47-50

1. Infrastructure assets. Dividend of $1.14-1.37, 1.2x coverage, gets $25 stock based on 4.5% yield, similar to KMI or OKE comps. Upside case 4% yield is $30.

2. E&P business: $9.00 floor share, based on NAV comps- CHK, et al. $1.24 per proven mcf, 25% below peers.

3. Hidden asset. Canadian Midstream business, oil sands gas processor. Based on 4.5x EBITDA get $3.00 base case, upside based on dividends, 0.40 div, 4.5-5.0% yield, get $6-8 per share in bull case.

4. Balance sheet value/ cap structure optimization. Either M&A or buyback, get $2-3 per share.

Risks: MLP valuation risk, NGL stability (20% of EBITDA from commodity-sensitive margins), regulatory changes - taxation of MLPs are a headline risk.

Path to realization? Spin of business Q1-2012 is catalyst. Dividend raise. Discovery of hidden asset by Street. Excess capital usage.

James Crichton: long Sensata Technologies (ST)

Airbags, jet circuit breakers, HVAC systems. High value add solutions. Low cost, high value nature of products, with high switching costs. The current issue of our Hedge Fund Wisdom newsletter also analyzes ST.

How Scout determines their Circle of Competence: Know the right people? Not quarter-to-quarter news flow, deep industry knowledge. Product? Do we understand the drivers of demand? Mental models: are there any useful predictable models in place? His example, Sensata engineers work at customers’ facilities, so familiarity makes it easy for customers to buy from them. Impact of un-analyzables. Identify risks and things that you can’t know for sure.

Business Quality. Powerful moat, inevitable product- make machines safer and more efficient. High value, low cost value proposition- typical sensor costs $10, in a multi-thousand dollar engine. High switching costs once designed into products. In flat GDP, grows revenue from 4% to as high as 20% in a better economy. FCF grows 12-30%.

Management: grew revenue 6.5% CAGR despite auto industry contraction. Management owns 2.2%, $100M of stock, CEO owns $45M.

Misunderstanding by Street: levered equity stub in a relatively new public company without peers. Change of incentives makes levered equity stubs work. (This was a Bain LBO from TXN in 2006, and then IPO’d). Management is paid more by stock than cash. Scout is higher than Street on estimates. “Sponsor” still owns 51% of stock, is selling, and may become more liquid. (Can be some overhang in these situations though).

Risks: need auto sales to hold up, improve for stock to work. Scout is modeling no growth, but also no further drop. Also, bull case relies on further accretive acquisitions. Valuation multiple may not expand.

Q&A Session: Did KMI/EP deal change their numbers for WMB? Gets you 11-12x EBITDA for pipeline asset, does indeed add to bull case price target.

For more from this hedge fund, head to some of Scout's other new positions.

Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.