Tuesday, July 26, 2011

Margin Call Movie Trailer: New Film About the Financial Crisis

Below is the movie trailer for the new financial film, Margin Call. It will be in theaters on October 21st, 2011 and features actors such as Kevin Spacey, Jeremy Irons, Demi Moore, Stanley Tucci, Paul Bettany, Simon Baker, and Zachary Quinto.

The movie is about the beginning stages of the financial crisis as it chronicles the final 24 hours of Lehman Brothers and is filmed from the viewpoint of people working at the (now extinct) Wall Street investment bank. The film is written and directed by J.C. Chandor.

Embedded below is the Margin Call movie trailer (email readers come to the site to watch):

While this movie probably won't top the legendary movie, Wall Street, hopefully Margin Call is at least better than Wall Street 2.

Market Strategist Jeff Saut Cautiously Favors the Upside

Market strategist's Jeff Saut latest commentary continues to focus on key support/resistance levels in the S&P 500. Last week he was concerned about market action. As the markets gyrate back and forth (essentially trading sideways), he waits for a resolution. This week, he can't help but be slightly optimistic, writing:

"Nevertheless, earnings continue to be the driver of the stock market's buoyancy and earnings remain robust as 73% of the 345 U.S. companies that have reported 2Q11 earnings have beaten estimates."

However, he also points out the obvious that if the debt ceiling is not raised, we'll see another downside hit. Saut's support levels for the S&P 500? 1316-1320 and the second is 1292-1296.

Lastly, it must be highlighted that Saut quoted lesser known rapper Tech N9ne in his missive, in what has to be an industry first.

Embedded below is Jeff Saut's latest market commentary:

You can download a .pdf copy here.

For more from Saut, head to his piece on the biggest worries of 15 European portfolio managers.

David Einhorn Buys Huntington Ingalls Industries (HII)

David Einhorn's hedge fund Greenlight Capital started a brand new stake in Huntington Ingalls industries (HII) per a 13G just filed with the SEC. Due to portfolio activity on July 15th, Greenlight has disclosed a 5.1% ownership stake in HII with 2,510,000 shares.

Huntington Ingalls was spun-off from Northrop Grumman (NOC) and started trading in April 2011. NOC operates in the security industry focusing on aerospace, information and electronic systems, etc. Since being spun-off, shares of HII are down almost 15%.

To read up on the rest of recent portfolio activity from this hedge fund, head to Greenlight Capital's Q2 letter as well as Einhorn's presentation from the Ira Sohn Conference.

Per Google Finance, Huntington Ingalls Industries Inc (HII) "designs, builds and maintains nuclear and non-nuclear ships for the United States Navy and Coast Guard, and provides aftermarket services for military ships around the globe. HII’s business divisions are Ingalls Shipbuilding and Newport News Shipbuilding (NNS)."

And to learn to invest like Einhorn, check out his recommended reading list.

Monday, July 25, 2011

Why Value Investing Isn't Working In This Market (Hedge Fund Ivory Capital)

Curtis Macnguyen's value-oriented hedge fund Ivory Capital says that the current market is very difficult for fundamental value investors as market participants opt for growth over value.

Earlier today we posted up Ivory Capital's Q2 letter and in it they outline the main reasons why the rules of value investing aren't working:

1. Excess Liquidity: "If there is very little cost to money, then it matters much less how much one is willing to pay for an asset; valuation becomes less relevant."

2. Scarcity Value of Growth Stocks: Investors are willing to pay-up for revenue growth in a low growth environment.

3. Mutual Fund Flows & ETFs: As value funds underperform, investors sell them off, depressing prices even further.

4. Quantitative Strategies: Models have de-emphasized valuation and emphasized momentum and revenue growth instead.

5. Poor Capital Allocation: Large/mega cap companies aren't allocating efficiently, creating an overhang in shares. Activism is needed to alleviate this.

6. Short-term Focus: There is a ton of pressure on funds from investors to generate returns NOW. Managers sell positions that aren't working (i.e. value stocks), sending shares lower. We noted how fellow hedge fund Shumway Capital shut down mainly due to short-term fixation by investors.

So while many value investors are having a hard time in this market, momentum chasers are seemingly having a field day. Be sure to check out Ivory Capital's investor letter for risks in the current market and updates on their current positions.

Curtis Macnguyen's Ivory Capital Q2 Letter

Founded in 1998 by Curtis Macnguyen, Ivory Capital is a long/short equity hedge fund that focuses on value-based investments. It's worth noting that before founding Ivory, Macnguyen worked at Siegler, Colliery & Co, the same shop that Greenlight Capital founder David Einhorn previously worked for.

Ivory is based in Los Angeles and today we're covering their second quarter letter that updates their portfolio.

At quarter end, Ivory Capital's top five positions were:

1. Microsoft (MSFT) 6.5%
2. Yahoo! (YHOO) 5.1%
3. Citigroup (C) 4.0%
4. DeNA Co (TYO:2432) 2.7%
5. Advanced Micro Devices (AMD) 2.6%

Performance & Equity Exposure

Ivory finished the second quarter -2.2% and year to date for 2011 they are -1.85%. Their equity exposure is 69.5% long and 43.4% short, leaving them net long 26.1%. While they saw outperformance in their other long positions of Sprint Nextel (S) and CVS Caremark (CVS), other longs hurt them.

Position Updates: Western Digital (WDC), Seagate Technology (STX) & Hospira (HSP)

The hedge fund thinks that consolidation in the hard disk drive industry should bring solid economics and dampen the cyclical nature of the industry. They also like STX's share repurchases and dividend (4.5% yield).

The current issue of our Hedge Fund Wisdom newsletter analyzes STX as numerous other hedge funds own shares (and it also features analysis of YHOO, a controversial stock at the moment).

Ivory also fancies generic injectables and infusion pump maker Hospira (HSP) because they see it as a strategic asset with 25% market share and high barriers to entry.

Embedded below is Ivory Capital's Q2 letter to investors (email readers come to the site to view):

For more letters from hedge funds, we've posted up the following:

- Oaktree Capital: Howard Marks' latest commentary

- Corsair Capital sees increased volatility ahead

- David Einhorn & Greenlight Capital's Q2 letter

- Third Point buys MOS & SLE

- Jonathan Ruffer worried about China

Third Point Buys Mosaic (MOS) & Sara Lee (SLE): Q2 Letter

Dan Loeb's hedge fund firm Third Point is out with its second quarter letter. Months ago, Loeb said he would no longer be writing the quarterly letters but his displeasure with the government caused him to take to the keyboard again.

Loeb notes that while he is typically a bottom-up investor, the economic and political environment require that investors pay attention to and incorporate macro factors into their thought process.

As we already pointed out last month, the hedge fund reduced equity exposure and the letter confirms this further. Third Point's rationale:

"Beginning in April, we concluded that the equity market no longer offered compelling upside considering the S&P was up ~9% YTD despite the heightening of the issues noted above as well as the Japanese earthquake and tsunami disasters. Towards the end of the quarter, we started to increase our single name short equity portfolio, largely because we saw that the market had started to reward individual stock picking for the first time in months, as correlations finally started to fall."

And even though they reduced net equity exposure, they did do some buying in the quarter:

Mosaic (MOS)

The fertilizer giant intrigued Loeb's fund due to the removal of a large overhang: the Cargill family selling their stake in the company. Third Point acquired their stake via a secondary at $65 per share. They have also subsequently added to their position during the market volatility.

They like grain and corn fundamentals and think potash fertilizer has "yet to recover to trend-line levels of demand."

Sara Lee (SLE)

They already owned this position, but added to their stake in Q2. Third Point believes that the market underestimates the company's earnings power and thinks both of their businesses (meat and coffee) could be attractive to strategic buyers.

Embedded below is Third Point's Q2 letter to investors (email readers come to the site to view it):

For more from Third Point, check out Dan Loeb's recommended reading list.