Friday, January 21, 2011

David Tepper Interview: "I Am Cautious But I Am Optimistic"

David Tepper, founder of hedge fund Appaloosa Management, appeared on CNBC this morning in an effort to raise awareness for his campaign to raise $15 million for the New Jersey community food bank (he's already raised $9m).

While he was there, he also of course shared his latest economic and market views. You'll remember that last time Tepper appeared on CNBC in September 2010, he was bullish on equities and his rationale inspired what many are calling the 'Tepper rally.' Since his comments then, the market has rallied more than 13%. Appaloosa's Thoroughbred fund returned 22% in 2010 and 100% in 2009. See how his numbers stack up against others in our post on 2010 hedge fund returns.

On the Economy

This time around, the Appaloosa hedge fund manager says that quantitative easing has worked and that the economy is better. Tepper also thinks that the unemployment situation will improve, but it won't get back to the lower levels quite seen before the crisis. He notes that the timing of the Federal Reserve's exit from its position of assistance will be important.

On the Market

Tepper also argues that S&P earnings multiples are still relatively low. With the S&P trading around 1,280 currently, he said he'd buy again... but at 1,000 (the same level where he was buying in September). Overall though, he is "cautious but optimistic." This attaches somewhat of a qualifier to the article yesterday that Tepper has turned cautious based on his comments in another interview. But at the same time, he notes that there's still uncertainty in other parts of the world (mainly European debt and China).

Tepper Likes Semiconductors

In terms of specific sectors and companies, he mentioned he likes semiconductors for 2011 and specifically cited Micron (MU). When he was interviewed in September, he mentioned that you could almost 'buy anything' since the Fed was pumping so much liquidity into the system. This time around, he says that you cannot simply 'buy anything' and you have to be more selective.

Regarding other investments Appaloosa currently holds, he mentioned he owns Banco Santander (STD) traded in Spain which we already knew from his Ira Sohn presentation in May 2010, but he also owns AIA, a subsidiary of AIG that recently IPO'd in Asia. We've noted that Bruce Berkowitz's Fairholme Capital participated in the AIA IPO.

Comments On His Dean Foods (DF) Stake

Tepper also talked about his new position in Dean Foods (DF). He likes the milk business in that Dean Foods has a dominant market position. But looking for areas of growth in the industry, he points to soy milk, almond milk, and organic milk and highlights that competitors aren't really doing anything there. Appaloosa thinks that the current milk squeeze (low retail prices) will be eliminated in the next year and they feel the company is cheap.

Embedded below is the video from his interview (email readers will need to come to the site to view it). Here's his thoughts on the macro environment and market in general:

And then here are Tepper's thoughts on more specific subjects like semiconductors, banking, and more niche topics:

To see what Tepper has been investing in lately, sign-up for our newsletter as his latest portfolio will be released in a few weeks.

Hedge Fund Farallon Sells Some Beacon Roofing Supply (BECN)

Hedge fund Farallon Capital Management just filed an amended 13G with the SEC regarding its position in Beacon Roofing Supply (BECN). Due to portfolio activity on December 31st, 2010, Farallon has disclosed a 3.5% ownership stake in BECN with 1,587,100 shares.

This signifies a slight reduction in their position size. At the end of the third quarter (September 30th, 2010), the hedge fund owned 1,869,032 shares. So over the past three months they've reduced their position by 15%.

Farallon was founded by Thomas Steyer in 1986 and today is a multi-billion dollar firm. They invest across the spectrum in equities, private investments, debt and real estate. Typically though, they focus on risk arbitrage. For an example of the types of investments Farallon makes, we examined their Alcon (ACL) play in a consensus hedge fund arbitrage trade.

Per Google Finance, Beacon Roofing Supply is "a distributor of residential and non-residential roofing materials in the United States and Canada. The Company also distributes complementary building materials, including siding, windows, specialty lumber products and waterproofing systems for residential and non-residential building exteriors."

Hedge Fund D.E. Shaw Shorts Barclays (BCS)

According to The Telegraph, hedge fund D.E. Shaw has taken nearly a £100m short position in Barclays (BCS). This short represents 0.26% of the company's shares outstanding and was disclosed to UK regulators via filing.

*Update: In a second filing, D.E. Shaw has disclosed that it has reduced its short position below the -0.25% threshold required for reporting. So while it's still entirely possible they are still short, the size of the position has been reduced.

Keep in mind that in the UK, institutions are still required to report short positions in financials that cross a particular size threshold. You can view our primer on tracking hedge fund positions in the UK for more information.

Regarding other portfolio movement at the hedge fund, we mentioned that D.E. Shaw boosted positions in Global Cash Access (GCA) and LodgeNet (LNET) back in December as well.

D.E. Shaw manages over $21 billion and was founded in 1988 by David E. Shaw. They focus on intertwining technology and finance as they are a hedge fund, private equity firm, and technology development shop all in one.

Taken from their website, they invest “in a wide range of companies and financial instruments within both the major industrialized nations and a number of emerging markets. Its activities range from the deployment of investment strategies based on either mathematical models or human expertise to the acquisition of existing companies and the financing or development of new ones.”

Per Google Finance, Barclays is "a global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management. It operates through branches, offices and subsidiaries in the United Kingdom and overseas. Barclays has two business groups: Global Retailing and Commercial Banking, and Investment Banking and Investment Management."

For research directly from the firm, head to D. E. Shaw's insight on leverage.

Louis Bacon's Moore Capital Reduces Mecom Position

Louis Bacon's global macro hedge fund firm Moore Capital Management recently disclosed an update to their position in Mecom (LON: MEC). Due to trading on January 7th, Moore has reduced its position to 3.55% of shares outstanding. This change was reported in a filing with UK regulators.

This is down from Moore's previous 4.45% stake in the publisher as Moore originally started a new position in MEC back in November of last year.

Per Google Finance, Mecom is "engaged in the operation of content and consumer businesses in Europe. The Company owns over 300 printed titles and over 200 Websites in its four divisions, with operations in the Netherlands, Denmark, Norway and Poland."

You can scroll through all our coverage of hedge fund positions in the UK here.

What We're Reading ~ 1/21/11

Comprehensive 2011 online brokerage review [tradeWISER]

Notes from John Griffin's class: Hedge fund analyst checklist [WorldBeta]

StockTwits interviews trader Charles Kirk [Howard Lindzon]

List of possible M&A targets [Footnoted/Morningstar]

Top 10 greatest trades of all-time [Barry Ritholtz]

Chicago value investor meet-up next week [SimoleonSense]

Family office vet talks about manager selection [FINalternatives]

Why he didn't setup as a hedge fund [Aleph Blog]

Short seller fights Chinese reverse merger frauds [Bloomberg]

Jeff Gundlach's DoubleLine bonds presentation (.pdf) [StoneStreetAdvisors]

Tread carefully in spun-off shares of Motorola Mobility (MMI)? [Peridot Capitalist]

How to become a great investor [GrahamInvestor]

Four further potential M&A targets [MarketWatch]

The 2011 investor roundtable [Barron's]

A look at investor Francis Chou [CanadianBusiness]

To make money, macro hedge funds must be nimble [Economist]

Google (GOOG) on the big mobile revolution [HarvardBusinessReview]

Why is Seeking Alpha paying its contributors? [Felix Salmon]

Thursday, January 20, 2011

David Tepper Turns Cautious

It appears that Appaloosa Management founder David Tepper has turned cautious on the markets. In a recent interview with the NY Post, Tepper has interjected some common sense and says that "when things go up too high, they will go down."

The hedge fund manager seems to be advocating taking some profits and reducing risk, or at the very least, bracing for any potential impact. From the NY Post, "Tepper said while 'the biggest opportunities' will remain in equities, 2011 will be 'harder and not without risk.' "

If you read into his comments, he obviously still sees equities as the more favorable asset class, but he also hints that you'll have to be more selective with your picks (rather than simply smashing the 'buy' button on anything, a trade that has pretty much worked since September). If you're looking for picks from the hedge fund manager himself, Tepper recently bought Dean Foods (DF). And you can of course see the rest of Appaloosa's picks in our Hedge Fund Wisdom newsletter (new issue due out in a few weeks).

We are pointing this out because Tepper is scheduled to appear on CNBC tomorrow. And last time he appeared on the network, his bullish take on equities sent the stock market rallying furiously higher in what many have dubbed the 'Tepper rally' (it's is up over 13% since). Will he move markets again tomorrow? We'll have to wait and see what his extended comments are. But if this interview is any hint of what he'll have to say, those trading on his every word will be inclined to take some profits and be more selective with their holdings.

As we've highlighted on the site, market strategist Jeff Saut has also been cautious on the markets, but will be an eventual buyer of any sizable dip.

A Unified Theory of Investing: East Coast Asset Management's Year-End Letter

Today we present the fourth quarter letter from Christopher Begg and East Coast Asset Management. Readers will be familiar with East Coast from their insightful past commentary on consensus versus variant perception in the markets. Their 2010 year-end letter begins with a macro assessment but the meat of the letter focuses on developing a definable edge in investing.

Unified Theory of Investing

Begg says that the Unified Theory of Investing, like Newton's law of gravity, appears self evident once identified. He writes, "in the case of investing, it is both the complexity of the market place and the emotions associated with allocating financial resources that serve to obscure this law."

In short, East Coast proposes that the Unified Theory of Investing is Internal Rate of Return (IRR). The firm then offers the equation that JoC = IRR, where JoC stands for "Joys of Compounding." We previously detailed East Coast's letter on the joys of compounding. They are merely using IRR as a metric for comparing and contrasting investment options. What is the potential IRR of the investment?

To illustrate this, Begg presents a simple analogy: "Just like a shopper walking the aisles of a grocery store, the investor shops for opportunities by the IRR that is intrinsic to the potential investment at the price quoted."

It should come as no surprise that David Einhorn's hedge fund Greenlight Capital evaluates their investments on an IRR basis. As you'll note in Greenlight's year-end letter, there is a section of closed positions where the fund identifies their IRR on each previous investment.

Gaining an Investment Edge

Begg's letter then goes on to discuss a conversation he had with Seth Klarman of the Baupost Group. They focused on how successful investors and firms need to have a definable edge. East Coast identifies a three-pronged approach in their investing edge:

1. Process of Infinite Refinement - Passing through knowledge to arrive at simplicity

2. Perspective - The lens with which you see the world

3. Synthesis - Aggregating, sorting, and curating the right information which can then be viewed critically

These concepts are all discussed in-depth and we highly recommend reading East Coast Asset Management's fourth quarter letter in its entirety, embedded below:

You can download a .pdf copy here.

Yet another great piece from East Coast illustrating a framework for investing. More great market commentary can be found in David Einhorn and Greenlight Capital's year-end letter that we posted yesterday as well as Dan Arbess and Xerion fund's 2011 strategy.

Wednesday, January 19, 2011

David Einhorn Buys BP (BP)

David Einhorn recently penned his Greenlight Capital year-end letter. In it, we learn that the manager started a brand new position in BP (BP) during the fourth quarter. Greenlight's average purchase price was $41.18 per share.

Of his new stake, Einhorn writes,

"The Deepwater oil spill in April 2010 caused a significant decline in BP's share price. BP reserved nearly $40 billion pre-tax to account for costs related to this accident and has thus far sold $22 billion of non-core assets (with a stated target of up to $30 billion in divestitures), leaving the balance sheet in excellent shape. Pro forma for these asset sales and after taking into account our estimate of BP's eventual oil spill related expenses, we expect BP will be able to earn nearly $20 billion per year from continuing operations. At less than 7x pro forma earnings, we purchased BP at a 25% discount to its peers."

Einhorn also feels that the company will be able to re-instate its dividend this year. His hedge fund is already up on its position as BP shares trade just north of $48 per share currently.

His new position is intriguing for a few reasons. First, this is his second subsequent oil-related purchase in 2010. As we've detailed previously, Einhorn bought Ensco (ESV), an offshore contract drilling company whose shares sold-off during the oil spill despite ESV having no involvement in the actual spill. We penned a previous investment analysis on ESV in our Hedge Fund Wisdom newsletter (free sample issue with ESV analysis here).

If anything, ESV was hurt by the near-term oil drilling moratorium that was enacted. Shares of ESV have appreciated significantly since Einhorn's original purchase and it is now one of Greenlight's top 5 positions.

Second, this investment is intriguing due to its timing. Many would argue that the time to buy BP was during the actual oil spill itself, as shares spiraled from $59 down to $27.50. After all, "buying when there's blood in the streets" is often a value investor's mantra. We already know of one such value investor that dove in head first, as Whitney Tilson's T2 Partners bought BP during the spill.

It's most likely that Einhorn waited to make his investment due to the large uncertainty surrounding BP, its financial condition, and the potential liability associated with the oil spill. For further analysis of the oil company, be sure to check out T2 Partners' presentation on BP. And for more recent commentary from David Einhorn, head to Greenlight Capital's year-end letter.

David Einhorn & Greenlight Capital's 2010 Year-End Letter

David Einhorn's hedge fund firm Greenlight Capital has returned 21.5% annualized net of fees since inception in May 1996. For 2010, his various hedge funds returned 12.5%, 14%, and 15.9%. You can see how that compares to other managers in our 2010 hedge fund returns summary.

Einhorn was positioned defensively last year due to the uncertain economic environment and such positioning led to slightly under-performing the market indices.

New Stakes in BP (BP) and Sprint (S)

During the fourth quarter they started a new position in BP (BP) at an average price of $41.18.

Greenlight also started a new stake in Sprint Nextel (S) at an average price of $4.46. We wrote about Einhorn's Sprint position last month.

Top Five Positions (in alphabetical order)

- Arkema (France: AKE or on the pink sheets: ARKAY)
- Ensco (ESV)
- Gold
- Pfizer (PFE)
- Vodafone Group (VOD)

Embedded below is Greenlight Capital's year-end letter to investors:

You can download a .pdf copy here.

2010 Hedge Fund Returns: Performance Numbers From Top Managers

Data from Hedge Fund Research indicates that as a whole, hedge funds returned 10.5% for 2010, lagging the S&P 500 return of 15.06%. Below you'll find specific hedge fund performance from top managers for last year. We'll continually update this post as more numbers roll in.

In general, the month of May was brutal for hedgies, but the majority managed to turn things around by the end of the year. And if you're interested in a year-over-year comparison, head to our posts on 2009 hedge fund returns as well as 2008 returns.

Hedge Fund Returns: 2010

Paulson & Co: +11%. That number pertains to John Paulson's Advantage Fund. The firm saw varied performance last year as its Advantage Plus Fund returned 17%, its Recovery Fund soared 24%, its Gold Fund returned 35%, and its merger arbitrage fund returned 27%.

Also worth highlighting is the fact that the gold share classes of Paulson's funds performed markedly better. The gold share class of the Advantage Fund was up 31% in 2010 (compared to +11% for the normal class). As always, we've showcased an in-depth look at Paulson's gold fund.

Bridgewater Associates: +38%. Ray Dalio's 'zen' approach to an investment firm paid off as they returned one of the higher totals across the hedge fund industry last year.

Renaissance Technologies (Medallion Fund): +30%. Jim Simons' legendary hedge fund continued its epic run of performance in 2010. What's astonishing is that those numbers are net of a 5% management fee and a 44% performance fee (gross performance of the fund would have been around 60%). Back in 2008, Medallion returned an astonishing 80% while markets crumbled.

RenTec's RIFF finished up 22.7% and its RIEF was up 16.5%. We've posted up the Medallion Fund's historical returns before for those interested.

Millennium Management: +13.3%. Israel Englander's firm now manages around $9.1 billion.

Greenlight Capital: +12.5%. We've of course covered David Einhorn's portfolio in-depth on the site. Last year seems to be the first that he's lagged the major market indexes as he took a cautionary stance given economic uncertainty.

SAC Capital: +15%. Steven Cohen's firm was amongst a bevy of other hedge funds that saw returns in the mid-teens.

Pershing Square Capital: +29.7% net. Bill Ackman's hedge fund had a stellar year as a bet on General Growth Properties' (GGP) bankruptcy turnaround paid off. Ackman discusses his portfolio here.

Tudor Investment Corp: +7.5%. Paul Tudor Jones' flagship BVI Global fund was positive for the year but still lagged the markets in general.

Appaloosa Management: +22%. That number is for their Thoroughbred fund. We also posted Tepper's recent interview.

Harbinger Capital Partners: -12%. Phil Falcone's fund had a rough year as they transitioned from their normal strategy to a concentrated bet on 4G.

Glenview Capital: +15.3% net. Here is our coverage of Larry Robbins' portfolio activity.

Moore Capital: +3%. Louis Bacon's flagship Moore Global was up only single digits for 2010, but its macro managers fund returned 105%.

AQR Capital: +27.3%. Cliff Asness' firm saw solid returns last year in its macro strategy.

Third Point: +34%. Dan Loeb's Offshore hedge fund had an impressive year and we've detailed his portfolio throughout the year. He manages around $2 billion.

JANA Partners: +8.4%. Barry Rosenstein's activist and event-driven hedge fund has around $1.9 billion AUM.

Clarium Capital: -23%. Peter Thiel's hedge fund continues to struggle as its long-term predictions face near-term volatility. While Clarium was down single digits in 2008 (and thus beat the market that year), the fund has lost money for three straight years. At last tally, Clarium managed $681 million, way down from its peak of over $7 billion.

Citadel Investment Group: +10%. Ken Griffin's investment firm saw 10% returns in its main Kensington and Wellington funds.

Passport Capital: +18.3%. John Burbank's macro style of investing has been known for its volatile near-term swings but solid long-term performance. We previously posted Passport's market commentary.

Centaurus Energy: -3.8%. Famed energy trader John Arnold suffered his first yearly loss in 2010. Arnold makes large and concentrated bets and has been hampered by regulators imposing position limits.

Xerion Fund (Perella Weinberg Partners): +12.66% net. Dan Arbess' fund manages $2.3 billion and we posted Xerion's 2011 investment outlook.

BlueCrest Capital: +16%. This quant fund turned in better numbers than its multi-strategy fund, which was up 8% or so.

T2 Partners: +10.3% net. Whitney Tilson and Glenn Tongue's hedge fund had a great start to the year but then bled gains as their short positions rallied against them. Here are T2's long and short positions.

Och-Ziff: +8.44%. Performance is for their flagship Master Fund. Their Special Investments Fund was up 13.16% for 2010. The firm manages over $27 billion.

Perry Capital: +14.6%. We talked about one of Richard Perry's latest investments here.

HBK Capital Management: +11.62%. The firm manages $5 billion and is named after the initials of its founder, Harlan B. Korenvaes. He launched the fund back in 1991 with $30 million.

Possibly the most intriguing note about hedge fund returns for 2010 is that a number of big name investors lagged market indices. This includes Ken Griffin (Citadel), Paul Tudor Jones (Tudor Corp), and one of Louis Bacon's funds (Moore Capital). Heading into 2011, we've already seen that hedge funds have reduced equity exposure so it will be interesting to see how they zig and zag through markets this year.

For past returns, head to our posts on 2009 hedge fund performance numbers and 2008 hedge fund returns.

Sources: Anonymous investors/investor letters, Hedge Fund Research, Bloomberg, Institutional Investor, Dealbreaker, Reuters, & HSBC.

Jeff Saut Sees Tactical Bull Market, Still Cautious Near-Term

Raymond James' Chief Investment Strategist, Jeff Saut, is out with his weekly market commentary. As we pointed out last time around, he was cautious but a buyer on dips. His thoughts remain unchanged in this regard. Hedge funds also agree as they've reduced equity exposure.

However, this time around he revealed some interesting thoughts about where he thinks we are in the overall stock market cycle. He points out that according to Dow Theory, this is a bull market. But when asked if it would be tactical or secular, he replies that, "Personally I think it is tactical within the context of the broad trading range we have been experiencing since the turn of the century."

And although he makes this distinction, he can't help but pay attention to the potential warning signs flashing at him. He notices numerous similarities between the current market and the action before the April 2010 market top. As such, he is cautious in the short-term. However, he does not see another 17% decline like last year's drop in May.

Overall, Saut is still a buyer on dips (if they ever come). He is bullish on technology and specifically likes CA (CA), Hewlett-Packard (HPQ), and NII Holdings (NIHD). Additionally in the bank sector, he suggested ideas of Iberiabank (IBKC), Peoples United Financial (PBCT), and Huntington Bancshares (HBAN).

Embedded below is Jeff Saut's latest market commentary:

You can download a .pdf copy here.

For more recent research from this shop, head to the analysts' best stock picks for 2011.

Balyasny Asset Management Buys Willbros Group (WG) Shares

Balyasny Asset Management, the hedge fund firm founded by Dmitry Balyasny, recently filed a 13G with the SEC regarding shares of Willbros Group (WG). Due to portfolio activity on December 21st, 2010, Balyasny has revealed a 5.15% ownership stake in WG with 2,463,491 shares.

This is only a slight increase in their pre-existing position in Willbros Group. Back on September 30th, 2010, the hedge fund firm owned 2,269,197 shares of WG. As such, Balyasny has only boosted its position size by 8.5% over the course of three months, buying 194,294 additional shares.

Nicknamed BAM, Balyasny Asset Management was founded in 2001 by Dmitry Balyasny. Their main office is in Chicago but they have offices around the globe. Their strategy is anchored by fundamental-based research organized by sector. The hedge fund firm seeks to "focus on misunderstood situations and companies/sectors undergoing turbulent change from different perspectives." As noted in our 2009 hedge fund returns post, BAM finished up 8.64% for that year.

Per Google Finance, Willbros Group is "a provider of energy services to global end markets serving the oil and gas, refinery, petrochemical and power industries. Within the global energy market, the Company is engaged in designing, constructing, upgrading and repairing midstream infrastructure, such as pipelines, compressor stations and related facilities for onshore and coastal locations, as well as downstream facilities, such as refineries."

For all our coverage on hedge fund activity, head to our posts on the latest SEC filings.

Soros Fund Management Takes Stake in San Leon Energy (LON: SLE)

George Soros' hedge fund firm, Soros Fund Management, have just disclosed a 22% ownership stake in oil and gas exploration company, San Leon Energy (LON: SLE). Due to trading on January 6th, the hedge fund recently crossed the London Stock Exchange's threshold that requires them to disclose the position.

It is likely that Soros acquired shares via San Leon's £59.6m placement on December 31st, 2010. In total, the hedge fund now owns 176,928,520 voting rights. Soros has also been involved in another oil & gas play as we detailed last month as well. There seems to be a common theme here and it will be interesting to watch for potential further investments. In the past, Soros had been a large owner of Petrobras (PBR), Brazil's state-owned oil play.

Per Google Finance, San Leon Energy Plc is "an oil and gas exploration company. The Company is focused on the exploration and production of oil and gas projects in Italy, Poland, Netherlands, United States and Morocco. SLE enjoyed success in acquiring all five permits it applied for in Italy which comprises of three offshore licenses near Sicily and two onshore in the Po Valley. SLE has worked with ONHYM in Morocco to explore the available and massive oil shale opportunities. The Company’s projects include Talisman Energy, Baltic Basin, Permian Basin South, Permian Basin North, Tarfaya Oil Shale Project, Zag and Tarfaya Licences, and Foum Draa & Sidi Moussa. The Company’s wholly owned subsidiaries consists of San Leon (Morocco) Limited, San Leon (USA) Limited, San Leon (Netherlands) Limited, San Leon Energy Srl, San Leon Services Limited, Gold Point Energy Corp., San Leon Energy USA Inc, San Leon (Poland) SP. Zoo, and Vabush Energy SP. Zoo. In 2009, the Company acquired Gold Point Energy (GPE). "

Be sure to scroll through our coverage of hedge fund activity in UK markets for more.

Tuesday, January 18, 2011

Bruce Berkowitz Sells General Growth Properties (GGP) Stake to Brookfield (BAM)

Shares of General Growth Properties (GGP) have been a big winner for Bruce Berkowitz's Fairholme Capital (and mutual fund FAIRX). After scooping up debt and shares while the company was in bankruptcy, Berkowitz has profited from the company's emergence from Chapter 11 as shares rebounded from the low single digits to now over $14.

It appears as though Berkowitz has said that now is the time to take some profits off the table. Announced via a press release today, Brookfield Asset Management (also a large GGP investor) has acquired 113.3 million shares of GGP from the Fairholme Fund. This transaction is valued at $1.7 billion and Brookfield's ownership stake in General Growth Properties will rise to 38%. Per GGP's restructuring, Brookfield is limited to owning 45% of GGP at most.

Other large General Growth Properties investors include hedge fund Pershing Square. Bill Ackman's firm helped spearhead the campaign to restructure GGP and ensure its exit from bankruptcy. We've detailed previously that Whitney Tilson's T2 Partners also owns GGP but trimmed its stake as well.

To finance the transaction, Brookfield will use $804 million in cash and will issue 27.5 million shares of Class A stock (BAM). Upon completion, Berkowitz's Fairholme will own a 4.5% equity stake in Brookfield.

Maybe the most interesting note here is that Fairholme is selling its *entire* equity stake in GGP, but it will continue to own warrants. Todd Sullivan over at ValuePlays has an interesting look at why Berkowitz might be doing this. A hint: it relates to St. Joe (JOE), a battleground stock as Berkowitz is long and David Einhorn's Greenlight Capital is short. It's purely speculation, but it's certainly an interesting idea.

What Steve Jobs' Medical Leave Means For Apple Investors (AAPL)

Apple (AAPL) CEO Steve Jobs emailed Apple employees to let them know he would be taking a medical leave of absence. Given that this is one of the largest companies in the world, we figured we'd examine what this means for the company and its investors. After all, according to Goldman Sachs, Apple is the stock that matters most to hedge funds.

Steve's email is posted below:


At my request, the board of directors has granted me a medical leave of absence so I can focus on my health. I will continue as CEO and be involved in major strategic decisions for the company.

I have asked Tim Cook to be responsible for all of Apple's day to day operations. I have great confidence that Tim and the rest of the executive management team will do a terrific job executing the exciting plans we have in place for 2011.

I love Apple so much and hope to be back as soon as I can. In the meantime, my family and I would deeply appreciate respect for our privacy. Steve"

Apple's Stock During Past Jobs Absences: A Buying Opportunity?

With this news, the number one question on investors' minds is: buy or sell? The natural expectation is for shares of AAPL to sell-off on this news. After all, that's exactly what happened the last two times Jobs took a medical leave of absence, in 2004 for pancreatic cancer surgery and in 2009 for a liver transplant. And already today, shares of Apple trading in Germany are down 7%.

Jobs' 2004 Absence: AAPL was down around 2% the day of the announcement of his surgery. Shares ended the week down almost 8%. One month later, shares had recovered the losses. One year later? Shares doubled.

Jobs' 2009 Absence: AAPL initially traded down 6% the day news broke that Jobs was leaving but ended the day down 2%. What happened to Apple's stock during the six months Jobs was gone? Up over 66%.

Taking a quick look at the StockTwits stream for AAPL shows that investors are readily expecting a dip in shares on the news again this time around. Yet what you should also take note of is the resounding 'buy the dip' mentality. This is probably most attributable to the fact that so many people witnessed shares eventually rise the last time Apple's CEO had to take some time away.

If you drill down specifics, Jobs' departure does not really have an immediate impact. Tim Cook, the company's COO, will take over operations just as he did last time Jobs stepped away. Cook, known for his operational prowess, will continue to execute the company's roadmap. Consider this: Apple's product pipeline for the entire year is largely already in place. Per Engadget:

- The Verizon (VZ) iPhone was just announced & will be released soon

- iPad 2 is currently in development and is rumored to be released in the early Spring

- The next generation iPhone 5 is also rumored to be in development with a potential summer release

- After that, it makes sense that they develop an iPhone capable of running LTE/4G data speeds

And on top of that, you have the usual refreshes and revamps to iPods, Apple TV, as well as the iMac and Macbook computer lines. The point here is simple: Jobs' absence changes little in terms of product roadmap and 2011 plans.

Yes, obviously the CEO is hugely valuable to the company, but Cook has already proven once that he can handle things while Jobs is gone. Investors have become more familiar with Cook as well as other key figures at the company, including Jonathan Ive of the design team. While Jobs is Apple's figurehead, he is not the only person there.

The largest potential negative of Jobs' temporary departure revolves around his attention to detail and his ability to envision the 'next big thing.' In that sense, he will certainly be missed. The more pressing concern here would be if Jobs extends his temporary absence into a permanent one.

Jobs' Second Medical Leave In Two Years

For investors, there is arguably no one more important to a stock than Steve Jobs. The man IS Apple. He is a visionary and responsible for the company's impressive turnaround over the years. At the same time, he is obviously human.

Back in 2008, the CEO started to noticeably lose weight and rumors started surging that his health was in decline. Apple investors will recall that Jobs previously battled pancreatic cancer. In January 2009, Jobs took a leave of absence and posted a letter about it. He returned about six months later after a liver transplant and the company flourished.

In his two letters (in 2009 and now in 2011) there is one common thread: he is still technically in charge. In 2009 he wrote, "I will continue as Apple's CEO during my recovery." And now in 2011 he writes, "I will continue as CEO and be involved in major strategic decisions for the company." And as we've outlined above, the company's pipeline is largely in place for the rest of the year.

However, a second leave of absence in a few years has to spook investors somewhat. We're not here to speculate as to what might be wrong with Steve. But investors in one of the largest companies in the world will chime in that they deserve the right to know what's going on with the CEO of a public company.

The crux of the situation is that Jobs' departure in the immediate term doesn't hurt Apple. The company rebounded just fine during his last departure. Jobs' absence is most concerning from an investment standpoint if he were to make it permanent. And with each additional medical leave, speculation mounts.

Everybody Loves AAPL Shares

Jobs' health will once again become THE talking point for the stock. Before this news came out, zero sell-side analysts had a 'sell' rating on the company. Zero.

Of all the stocks and hedge funds we cover on, Apple is by far and away the most widely owned by hedgies. David Einhorn of Greenlight Capital established his AAPL position way back at $248 per share and he was arguably a late-comer to the AAPL party. So many prominent managers own AAPL as a top holding that we had to create a separate post for the top hedge funds that own Apple.

And already, Goldman Sachs is out defending shares of the company as they anticipate a wave of sellers this morning and in the near-term. They re-iterated keeping AAPL on their Conviction Buy List and buying on any weakness with a 12-month price target of $430. Goldman's Bill Shope outlines their rationale:

"1) The management team remains strong, and we believe investors would embrace Tim Cook in any potential succession plan;

2) Apple's $51 billion in cash and investments could be partially distributed to shareholders to stabilize the shares;

3) The multiple of 15.1X already represents a significant historical discount, and we see no direct risk to earnings from this move."

It should also be noted that Goldman identifies "uncertain management succession plans" as a potential key risk for the future. But in the near-term, it's very clear that they still like shares on any expected weakness. You can read the full Goldman Sachs note on Apple here and can visit our previous post on Goldman identifying AAPL as the most important stock to hedge funds.

What It Means For Investors

Shares of AAPL will undoubtedly have a cloud of uncertainty hanging over them for some time. The same thing happened when Jobs took medical leave in 2009. Investors will also carefully consider that the company is set to report earnings this week as well. Apple often 'sandbags' guidance and then blows out the numbers in its report.

Will the company's earnings be able to overshadow Jobs' departure? It's doubtful, especially when you consider that analysts on the conference call will largely focus on Jobs. And if Apple's past stance on commenting on Jobs' health is any indication, they'll be beyond tight-lipped.

The main takeaway here is that Apple has already survived a Jobs medical leave before and with the company's current product roadmap in place, it can do so again. At the same time, investors rightfully have to be concerned about Jobs' long-term future at the company. His health is the most important thing here and as he stated in his 2009 letter, "I will be the first one to step up and tell our Board of Directors if I can no longer continue to fulfill my duties as Apple's CEO."

In the near term, the company will be fine. It's the long-term that investors have to be concerned about. It will be most intriguing to see what various hedge funds do with their AAPL positions pending this development. A mass exodus by hedge funds could send shares spiraling. After all, it is one of the most widely owned stocks in the market and we've identified the hedge funds that own lots of AAPL in a separate post.

* If you found this article useful, you can find much more analysis on what the top hedge funds are investing in by receiving our free updates via email or via RSS reader.

Top Hedge Funds That Own Apple (AAPL)

Continuing our coverage of Apple (AAPL) today, we present the top hedge funds that own Apple. After all, we've previously highlighted how Apple is the most important stock to hedge funds.

Without further ado, here is the breakdown of the top hedge fund owners of Apple as of September 30th, 2010. This data was taken from the most recent SEC 13F filings. The newest 13F's won't be released for about another month at which point we'll get an updated look as to who owned AAPL at 2010 year-end, so this data should be taken with a grain of salt. Keep in mind that will of course be analyzing the latest hedge fund positions in our newsletter, Hedge Fund Wisdom.

Hedge Funds That Own The Most Apple (AAPL):

1. Stephen Mandel's Lone Pine Capital: Owns 0.29% of AAPL (2,707,106 shares)

2. David Shaw's D.E. Shaw Investment Management: 0.26% of AAPL (2.39 million shares)

3. Jim Simons' Renaissance Technologies (RenTec): 0.21% of AAPL (1.96 million shares)

4. Shumway Capital Partners (Chris Shumway): 0.2% of AAPL (1.8 million shares)

5. Rob Citrone's Discovery Capital Management: 0.17% of AAPL (1.5 million shares)

6. Philippe Laffont's Coatue Management: 0.17% of AAPL (1.5 million shares)

7. Lee Ainslie's Maverick Capital: 0.15% of AAPL (1.3 million shares)

8. Chase Coleman's Tiger Global: 0.14% of AAPL (1.25 million shares)

9. John Griffin's Blue Ridge Capital: 0.13% of AAPL (1.22 million shares)

10. David Einhorn's Greenlight Capital: 0.09% of AAPL (837k shares)

11. Kleinheinz Capital Partners (John Kleinheinz): 0.09% of AAPL (782k shares)

12. Ken Griffin's Citadel Investment Group: 0.08% of AAPL (753k shares)

13. David Stemerman's Conatus Capital: 0.08% of AAPL (714k shares)

14. Kingdon Capital Management: 0.08% of AAPL (701k shares)

15. Jeff Vinik's Vinik Asset Management: 0.07% of AAPL (621k shares)

Of the list above, you'll notice an overarching theme: Tiger Cubs. Of the top hedge fund owners of AAPL, seven are 'Tiger Cub' hedge funds. These are funds that employ long/short equity strategies similar to those learned from the respective manager's time working at Julian Robertson's Tiger Management. This strategy focuses on intensive fundamental research and often focuses on value or G.A.R.P. (growth at a reasonable price) investments.

Singling out a few of the other managers on the list above, we previously detailed that Apple is Kleinheinz Capital's top position when we examined their letter to investors. Additionally, in the past we've touched on David Einhorn's rationale for buying Apple as his cost basis is around $248 per share.

Earlier this morning we highlighted Goldman Sachs' research on AAPL where they kept the stock on their Conviction Buy List despite CEO Steve Jobs' medical leave of absence. Additionally, we highlighted in-depth what this means for AAPL investors.

* If you found this article useful, you can find much more analysis on what the top hedge funds are investing in by receiving our free updates via email or via RSS reader.

Goldman Sachs Note on Steve Jobs & Apple (AAPL): Still on Conviction Buy List

Goldman Sachs is out with an updated research note on shares of Apple (AAPL) pending the news that CEO Steve Jobs has taken another medical leave of absence. Today we are focusing on AAPL on the site because according to Goldman, it is the most important stock to hedge funds.

Practically all of the major hedge funds we track have exposure to Apple and for many, it is their top position. We've compiled a list of the top hedge funds that own AAPL here. Combine this with the fact that Steve Jobs IS Apple, you have a potentially volatile situation on your hands. Due to Jobs' medical leave of absence, Goldman expects shares to see near-term weakness. However, they view any dips as a buying opportunity and maintain the stock on their Conviction Buy List.

Goldman's 12-month price target on shares of AAPL is $430. Per the report, "Our target price represents a 19x P/E multiple on our above-consensus CY2010 EPS estimate or a 19% discount to Apple's five-year average multiple of 23x."

Their research essentially outlines 3 reasons that the long-term fundamentals for Apple are still in tact:

1. Tim Cook is a proven leader and step in if Jobs' absence ever became permanent

2. Apple has a massive cash hoard of $51 billion

3. The stock is already trading at a historical discount and Goldman sees no threat to earnings

Embedded below is Goldman Sachs' full research note on Apple (AAPL):

You can download a .pdf copy here.

For more on AAPL, head to our in-depth post on what this means for Apple investors, as well as our summary of the hedge funds that own the most AAPL shares.