John Paulson's hedge fund firm Paulson & Co has been active in numerous stocks lately, including NovaGold Resources (NG)
Activist on NovaGold Resources (NG)
John Paulson filed an amended 13D with the SEC regarding his activist position in the gold miner. They've disclosed almost a 30 million position in the name and have increased their position size by 30% since the beginning of the year. They now have a 10.8% ownership stake in the company.
While the hedge fund originally bought the miner as part of Paulson's gold fund in a wager against the US dollar, shares now have an added catalyst as well.
NovaGold's Spin Off
NovaGold plans to spin off its Northern Alaska Ambler copper deposits which will now be known as NovaCopper.
Shareholders of NG will receive 1 share of NovaCopper for every 6 shares of NG owned. The shareholder meeting takes place on March 28th and the spin off is largely expected to be complete by April 30th.
The new company will be headed by former NG CEO Rick Van Nieuwenhuyse. While he's obviously biased, he thinks it's a great opportunity and highlighted the company's prospects:
"NovaCopper holds highly valuable assets ... Our ultimate objective is that the twin attributes of high grades from multiple deposits, when combined with jurisdictional safety, will result in NovaCopper being rated as the premier vehicle in its class."
In an attempt to focus solely on gold, NovaGold is also looking to sell its Galore Creek copper project as well.
For more recent activity from this hedge fund, you can read Paulson's presentation on Hartford Financial Services Group (HIG) as well as how Paulson sold some Delphi (DLPH).
Friday, March 9, 2012
John Paulson's hedge fund firm Paulson & Co has been active in numerous stocks lately, including NovaGold Resources (NG)
John Paulson's investment firm Paulson & Co recently filed a Form 4 with the SEC disclosing that they had sold over 1.1 million shares of Delphi (DLPH) at a price of $31.96 on March 5th.
Despite these sales, Paulson still owns a lot of DLPH. Their Credit Master fund owns 19.2 million shares as the company emerged from bankruptcy and became publicly traded again.
Their Recovery Fund also owns over 3.3 million shares while their Advantage Master fund owns 877k shares and their Advantage Plus Master fund owns 1.4 million shares.
Prior to its IPO, Delphi was owned by many hedge funds we track. During the IPO process, it was reported that Paulson would be selling about 20 million shares of its stake. Delphi continues to be one of Dan Loeb's biggest holdings.
Per Google Finance, Delphi is "is a global vehicle components manufacturer and provides electrical and electronic, powertrain, safety and thermal technology solutions to the global automotive and commercial vehicle markets. It is a vehicle component manufacturer, and its customers include the 25 automotive original equipment manufacturers (OEMs) in the world."
Paulson on Their Delphi Stake
In a letter to investors, Paulson & Co talked about their Delphi stake:
"Delphi, the largest U.S.-based automotive parts supplier, emerged from bankruptcy in late 2009. We believe bankruptcy reorganization transformed this previously troubled manufacturer into one of the auto parts industry's most efficient companies. In bankruptcy, many of the firm's liabilities were eliminated and its cost structure was drastically reduced, which we believe will likely lead to higher profits and a higher valuation.
Upon emergence from bankruptcy, Delphi's defaulted secured debt was exchanged for privately traded partnership units. The partnership units initially traded at $5000 per unit, had minimal analyst coverage, and required signing a confidentiality agreement to receive financial information. As the security was unlisted, illiquid, and complicated, it was little understood by the market and traded at a wide discount to Delphi's public equity comparables.
Delphi completed its IPO on November 17th, 2011. Paulson sold ~20M shares across our funds for $22 per share, yielding total proceeds of $453 million. We remain the largest shareholder in the company and believe that Delphi is taking the correct steps to remove its valuation discount to peers, including participation at the Detroit Auto Show, and initiating discussions with sell-side research."
Check out more activity from the hedgie: Paulson's presentation on Hartford Financial Services Group (HIG) as well as the catalyst for NovaGold (NG) shares.
John Paulson's hedge fund Paulson & Co has an activist position in shares of Hartford Financial Services Group (HIG) and owns 8.5% of the company with over 37.5 million shares.
On the company's recent earnings conference call, Paulson blasted management as shares had fallen 38% last year. Paulson pointed out that, "Hartford needs to do something because the stock is the lowest valuation relative to book value of any major insurance company."
He's pushing for them to spin off the Property & Casual division. In an amended 13D filed with the SEC today, Paulson & Co outlined a presentation as to the benefits of completing such a spin off.
Hartford's CFO Christopher Swift said that there are many challenges to such a proposal, the main hurdle being the company's $6.8 billion in debt. Swift is concerned that a separate life insurance company could only keep its financial ratings strength if it assumed around one-third of that debt.
Paulson's Presentation on a Potential Hartford Spin-Off
Basically, Paulson feels that a spin-off could of the Property & Casualty business could enhance shareholder value by 60%. Embedded below is Paulson's presentation on a potential Hartford spin off (email readers click the link to view):
Want more on Paulson? Head to these links:
- Paulson's NovaGold (NG) catalyst
- Paulson sells some Delphi (DLPH)
Thursday, March 8, 2012
Market Folly's coverage has expanded into tracking hedge fund positions in UK markets as well as in French markets. Upon digging in the latter's regulatory system, it's clear that four prominent hedge funds have been short Neopost SA traded on Euronext Paris (NEO.PA).
Hedge Funds Short Neopost
Steve Mandel's Lone Pine Capital has been short shares in its Lone Balsam, Lone Sequoia, Lone Spruce, and Lone Cypress investment vehicles. They crossed the threshold that required regulatory disclosure on January 11th, 2012 and revealed a net short position of -0.508% of Neopost's shares.
Cliff Asness' AQR Capital has disclosed a -0.995% short position in Neopost due to crossing the regulatory threshold on March 2nd, 2012. They've shorted it in various funds including their absolute return master account, multi-strategy fund, relative value fund and more. They've been short for a few months and this is a slight decrease in their position as they disclosed a -1.088% short on January 31st, 2012.
Ricky Sandler's Eminence Capital has disclosed a -0.895% short in Neopost due to crossing the threshold on January 3rd, 2012. They've also been short shares as far back as August 2011 when they were short 1.32% of the company's shares. Eminence's position has slowly decreased over the past eight months, though they still maintain a position.
Alan Fournier's Pennant Capital revealed their short position due to activity on October 19th, 2011 where they were short -0.72% of shares. A month prior in September, they were only short -0.5%.
The main takeaway here is that it's highly likely that most still maintain short positions in Neopost given that they have not filed disclosures indicating they've gone below the -0.5% short position threshold (they're required to file then).
Rationale For Shorting Neopost
The thesis behind shorting Neopost is largely a secular decline story. Many hedge funds have invested under the broad theme of transformation from print to digital. They go long the companies pioneering technology and short the companies whose products are in decline (and in some cases heading toward obsolescence).
The decline in traditional postal mail somewhat falls under this theme as fewer pages/documents are printed and mailed, instead being stored and transferred digitally.
U.S. First Class mail has seen a decline in volume of over 5% annually over the past four years. Not to mention, it's been in the news that the US Postal Service was potentially facing bankruptcy.
Per Google Finance, Neopost is "a France-based company engaged in the provision of solutions for the mailing and logistics sectors. The Company rents, leases and markets mailing equipment, document and logistics systems, and supplies customized mail processing solutions for letters and parcels to a range of customers in the corporate sector."
Neopost is the second largest provider of postage meters in the US, behind only Pitney Bowes (PBI). Given that physical mail is in secular decline, it should come as no surprise that some hedge funds in the past have disclosed put positions on PBI in their 13F filings with the SEC as well.
Neopost is going after PBI's business by releasing a lower-end postage meter for the US market. Competition in the industry as a whole is heating up as Stamps.com (STMP) offers e-postage as well.
Hedgies are willing to pay Neopost's 3.7% dividend (shorts must pay the dividend normally received by longs) because they believe gains from the decline in share price will more than outweigh these carrying costs. Shares of Neopost have largely traded in a range between €48-58 over the past six months (NEO.PA currently trades at €51.xx).
In summary, it seems hedge funds are betting against Neopost largely as a way to play the secular decline in physical mail.
Pershing Square Capital founder Bill Ackman appeared on CNBC and gave his thoughts on a myriad of topics including McDonald's (MCD), Amazon.com (AMZN), Borders (BGPIQ), and the economy.
On the Fast Food Business
Ackman says that he likes the fast food business after talking about McDonald's (MCD) same store sales. He's been a big shareholder in the industry in the past, owning both Wendy's (WEN) and MCD though he doesn't own any stakes now.
He likes businesses where you can charge a royalty on other people's sales (i.e. MCD collects 4% of the gross revenues of 33,000 stores and another 8-9% in rent).
The hedge fund manager also commented on what he calls his "worst investment ever": Borders. He highlights the obvious how Amazon.com (AMZN) has taken so much share from brick and mortar bookstores. He thinks it's important for there to be competition for AMZN.
On J.C. Penney
Ackman is on the board of J.C. Penney (JCP) and commented how the company has rolled out a new brand, new pricing strategy, and new store layout as new CEO Ron Johnson (formerly of Apple) puts his 5 year plan into effect. Ackman said that he will be very patient with this investment as it takes time for the turnaround to take hold.
On the Economy
His differentiated view is that "there's a decent chance we massively outperform expectations."
He likes that the effective cost for owning a home is the lowest ever (due to housing prices and interest rates being so low). Ackman attributes the one reason that more people haven't bought homes to the fact that they're afraid of losing their jobs. So employment levels stabilizing would obviously help there.
Ackman also agreed with Warren Buffett's recent comments that buying homes and renting them out, despite being "cumbersome," could be a good play if you have the time and money. He argues you could achieve 9-11% yields in some markets by doing so.
On Lowe's (LOW)
He mentioned he owned Lowe's (LOW) in the past as a potential housing recovery play but sold it as shares rapidly appreciated. He used the cash from this passive investment to buy shares in his activist investment in Canadian Pacific (see Pershing's presentation on CP).
Embedded below is the video of Bill Ackman's interview (email readers click to come view it):
You can view Bill Ackman's portfolio in the brand new issue of our Hedge Fund Wisdom newsletter.
Trying something new out here on Market Folly: a sector specific linkfest. Next week week we'll also do an MBA specific linkfest. And rest assured, the regular hedge fund/market linkfests aren't going anywhere.
The spectrum crunch [CNN Money]
On AT&T's quest for more spectrum [Barrons]
Apple's iMessage the death of text messages? [The Techblock]
Wireless carriers hate the iPhone [BGR]
Apple confronts the law of large numbers [NYTimes]
Amazon's hit man [BusinessWeek]
Amazon's Jeff Bezos on thinking long term [Economist]
Online social networks & the ascent of Facebook [Can Turtles Fly?]
The unhyped new areas in internet and mobile [TechCrunch]
NFC Payments to reach $74 billion by 2015 [TechCrunch]
Visualizing at Google's earnings [Wordstream]
A look inside Pandora's box [WSJ]
Music services: Spotify versus Rdio [Wired]
Walter Isaacson's 'Steve Jobs' [Daring Fireball]
Since the site so often focuses on US traded securities, every once in a while we like to highlight notable activity in foreign markets as well. We've highlighted UK positions hedge funds have been active in, and now we'll also cover relevant positions in French markets.
A perfect example of this is activity from Dan Loeb's hedge fund Third Point and Philippe Laffont's Coatue Management.
Third Point crossed the 5% ownership threshold on shares of Technicolor (EPA:TCH) traded on Euronext Paris on January 24th, 2012. As of that date, the hedge fund owns 17,149,658 shares representing 171,496,580 voting rights, or 7.66% of share capital and voting rights of the company.
What's interesting is that their regulatory filing in France also highlights that they crossed the threshold due to taking delivery of shares previously subject to "contract for difference" (CFD), a tool we've talked about before that many hedgies use (click on the link to learn more about it).
Technicolor had previously been listed in Third Point's top holdings, but other stakes have replaced it in recent months. This regulatory filing provides the most recent data point as to how large Third Point's equity position in the company is. We've seen Technicolor appear in their portfolio as far back as March 2011 (when they've owned multiple securities of the issuer).
Coatue Management Short Technicolor in the Past
Technicolor is also the perfect example of how there are always two sides to a trade. Philippe Laffont's hedge fund Coatue Management was previously short Technicolor (and they could possibly still maintain a small short). Coatue disclosed their short with French regulators back in October 2011 with a -3.04% short position.
Over the next three months, they reduced their position to -0.97%. And most recently, they filed a disclosure on February 6th notifying French regulators that they had gone below the -0.5% threshold required for reporting.
So while it's still possible Coatue holds a very small short in the company, they won't have to report anything until they cross the -0.5% ownership stake threshold again.
Per Google Finance, Technicolor "is engaged in the development of broadcasting technologies. It supplies production, postproduction and distribution services for content creators, broadcasters and network operators. Technicolor’s activity covers services for Content Creators; digital home products and software service platforms, and research and licensing. The Company is organized around three operating divisions: Entertainment Services, Connect and Technology."
Wednesday, March 7, 2012
John Burbank's hedge fund firm Passport Capital talked about their rationale for owning Marathon Petroleum (MPC) in their year-end letter.
Marathon Petroleum (MPC)
Passport writes, "Marathon has an $11.8 billion market capitalization and an enterprise value of $12.2 billion. We expect the company to generate $3.9 billion in EBITDA in 2012 and free cash flow (FCF) of $1.5 billion, for roughly a 14% FCF yield.
During the quarter, the company raised their quarterly dividend from $0.20/share to $0.25/share, resulting in approximately a 3% dividend yield at year end. During its first analyst day in December, the company emphasized its highly experienced management team, cycle-tested business model, unique integrated asset base, and sound financial position. MPC also emphasized organic projects in 2012 that could increase access to discounted crudes and increase yield of higher margin products like distillates. Their Detroit refinery upgrade (expected by the end of 2012) was reported to be on schedule and budget.
While the fourth quarter was weaker than originally expected given the decline in the Brent/WTI spread, it is typically the weakest quarter of the year. Importantly, the decline in the Brent/WTI spread does not impact our free cash flow estimate for 2012, which provides a yield of 14% and remains unchanged despite the decline in the spread."
So what other funds own Marathon Petroleum? Barry Rosenstein's JANA Partners is the second largest owner of MPC shares after assembling a massive new position in the fourth quarter.
As of December 31st, here were Passport's Top Ten Equity Positions:
1. Marathon Petroleum (MPC): 5% of NAV
2. Liberty Interactive (LINTA): 4%
3. Cytec Industries (CYT): 3%
4. Thoratec (THOR): 3%
5. Tarpon Investimentos (TRPN3.BZ): 2%
6. Cie Financiere Richemont SA (CFR.VX): 2%
7. Vivus (VVUS): 2%
8. C&J Energy Services (CJES): 2%
9. Priceline.com (PCLN): 2%
10. WebMD (WBMD): 1%
You can view an equity analysis of Priceline.com in the brand new issue of our Hedge Fund Wisdom newsletter.
Also, we recently highlighted why Carl Icahn likes WebMD as well. Lastly, you can watch John Burbank's interview with Bloomberg where he talks about why he likes VVUS and why he thinks 2012 is a stockpicker's market.
For more of the hedge fund's commentary, we've also posted up why Passport Capital likes Liberty Interactive (LINTA).
In their year-end letter, John Burbank's hedge fund firm Passport Capital talked about their investment thesis on one of John Malone's companies:
Liberty Interactive (LINTA)
"Liberty Interactive returned 9.9% during the fourth quarter. Having successfully resolved bondholder litigation that had constrained its ability to return capital to shareholders, the company split from parent corporation Liberty Media Corp. in late September. We view this split as the first step in a shareholder- friendly metamorphosis of LINTA reminiscent of those undergone by other Liberty entities which became Liberty Global, Discovery Communications, and DirecTV. Key strategies include equity shrink, sale/spin-off of non-core assets, and a consequent broadening of the shares’ market constituency.
In October, the company repurchased shares at a 12% annualized rate. We expect this pace to accelerate given the company's significant liquidity and minority equity stakes, which amount to approximately 57% of market capitalization as follows:
- Value, partially taxed, of minority equity positions in Expedia, TripAdvisor, and Home Shopping Network: approximately 28% of market capitalization
- Cash in excess of operating needs: approximately 8% as calculated by Passport
- 2012 FCF yield (before impact of share repurchase): approximately 8% as calculated by Passport
- Additional debt expected on QVC bank credit line: approximately 13% as calculated by Passport
The company’s primary operating asset, QVC, is a high-quality cash generator which has performed in line with our expectations. While the primary bear case on the business is online competition, we note that 35% of QVC’s U.S. sales and about 30% of total company sales transact online, that over half of QVC’s new customers have been arriving online, and that QVC’s customer repeat rates have generally been steady for many years. QVC’s franchise is rooted in its ability to move incremental volumes for manufacturers and consistently please its loyal consumers, and for this QVC receives differentiated merchandise and pricing that represent a significant moat around the business. QVC’s 20% operating (OIBDA) margins and its recent shipping and handling price increase support this point."
Other Hedge Funds That Own LINTA
John Malone's various Liberty entities have always seemingly been owned by hedge funds. Liberty Interactive (LINTA) in particular is owned by numerous other managers besides Passport.
However, what's interesting is that in the fourth quarter, LINTA was one of the stocks most actively reduced or sold by the 50+ prominent hedge funds we track. Despite this, a plethora of well known managers still own the stock.
Here are some of the top owners of LINTA in descending order: Empyrean Capital Partners, Highbridge Capital, SAC Capital, JANA Partners, Carlson Capital, Third Point, Senator Investment Group, and Ivory Investment Management.
For more from Burbank's firm, we've also posted up why Passport Capital likes Marathon Petroleum (MPC).
Lee Cooperman's hedge fund firm Omega Advisors has started a brand new position in Home Loan Servicing Solutions (HLSS) as the company completed its initial public offering on February 29th.
Omega filed a 13G with the SEC disclosing their 9.9% ownership stake in Home Loan Servicing Solutions with 1,388,000 shares.
The company cut the planned size of its IPO down to 13.3 million shares after initially targeting 18.3 million shares. HLSS currently trades around $13.50.
You can view the rest of Omega Advisors' portfolio in a free excerpt of our new newsletter.
Per Yahoo Finance, Home Loan Servicing Solutions "a development stage company, focuses on acquiring mortgage servicing assets, primarily subprime and Alt-A mortgage servicing rights and associated servicing advances."
Tuesday, March 6, 2012
We're proud to announce a new series here on MarketFolly.com: stock of the week. This series aims to provide a quick summary of what hedge fund managers and well known investors might see in a particular company.
These posts are written by Tsachy Mishal who is the Portfolio Manager at TAM Capital Management. He provides background on the situation, as well as what he likes and dislikes about the company. Here's his take on what Carl Icahn sees in WebMD (WBMD):
Carl Icahn is so well known for putting fear in the heart of corporate boards and entrenched managements everywhere, that his amazing record as an investor is often overshadowed. When I saw WebMD trading at a 52 week low I was eager to take a look as Carl Icahn bought 11.64% of the company at significantly higher prices.
WebMD is the most visited health related website in the US by both patients and doctors. People visit the site in order to learn more about drugs, illnesses, and general health issues. WebMD largely makes its money off of advertising. WebMD has stumbled recently as pharmaceutical companies have cut ad spending. Pharmaceutical companies are facing a patent cliff which is a double whammy for ad spending. There are fewer drugs to advertise and companies are looking to offset lost revenue with lower costs.
WebMD has a market cap of $1.4 billion and $320 million in net cash for an enterprise value of $1.08 billion. In 2011 WebMD produced $558 million in revenue and $116 million in free cash flow. In 2012 revenue is expected to fall to $507 million and free cash flow is expected to fall to $65 million.
What I like:
- WebMD trades at a little over 9 times 2011 free cash flows. If they could turn around their revenue decline and cut costs, the stock would be very attractively priced.
- Carl Icahn seems to be influencing the company as the recent tender offer is straight out of his playbook.
- There is a tender offer for $150 million worth of shares. Tender offers tend to have a positive short term effect on stock prices.
What I don't like:
- WebMD trades at 16 times forward free cash flow, which seems high for a stumbling company.
- Stock option expense is nearly $40 million a year, which is a very large portion of free cash flow and earnings.
- Content creation on the internet does not have any barriers to entry.
- There do not seem to be any potential acquirers as the company unsuccessfully tried to sell itself recently.
I must admit to scratching my head when first looking at the company, trying to figure out what Carl Icahn sees. Then, I realized that just a few months ago there were expectations for growing revenue and free cash flow. I'm not certain that Carl Icahn would have gotten himself into this situation had he known he was looking at a revenue and free cash flow decline. However, as owner of 11.6% of the company, it's difficult for him to turn back. WebMD is now a turnaround situation and with Carl Icahn calling the shots I wouldn't bet against them. That said, I'm not interested in betting alongside Carl Icahn in WebMD.
That concludes the first entry in MarketFolly's new series: stock of the week. The above was written by Tsachy Mishal, Portfolio Manager at TAM Capital Management.
Alan Fournier's hedge fund Pennant Capital disclosed a new position in HomeServe (LON:HSV) traded in the UK.
On March 2nd, 2012, Pennant crossed the 3% ownership threshold required for regulatory notification. The hedge fund now owns over 9.7 million shares of HSV. They have over 10.6 million in voting rights which is equivalent to a 3.24% stake.
We've detailed the rest of Pennant's portfolio in the latest issue of our Hedge Fund Wisdom newsletter that was just released.
Per Google Finance, HomeServe "provides home emergency and repair services to over 4.9 million customers across the United Kingdom, the Unites States of America, France and Spain. Services are provided through its membership businesses, which are responsible for the marketing and administration of over 11 million home repair and appliance warranty policies."
We've also detailed how Pennant has been active in shares of Huntington Ingalls Industries.
Steve Cohen's hedge fund SAC Capital just filed a 13G with the SEC regarding shares of Dynavax Technologies (DVAX).
The hedge fund has boosted its holdings by 831,731 shares, almost a 12% increase in their position size since the end of 2011.
SAC Capital now owns 7,856,130 shares of DVAX which is a 5.1% ownership stake in the company. The SEC filing was made due to trading activity on February 22nd. You can also see some of SAC's other recent portfolio activity here.
Per Google Finance, Dynavax Technologies is "a biopharmaceutical company that discovers and develops products to prevent and treat infectious diseases, asthma and inflammatory and autoimmune diseases. The Company’s principal product candidate is HEPLISAV, a Phase III investigational adult hepatitis B vaccine. Its pipeline of product candidate includes HEPLISAV; its Universal Flu vaccine; clinical-stage programs for hepatitis C and hepatitis B therapies, and preclinical programs partnered with AstraZeneca and GlaxoSmithKline (GSK)."
SAC Capital was recently named one of the top 10 hedge funds by net gains since inception.
Tom Brown's hedge fund firm Second Curve Capital just filed a 13G with the SEC regarding shares of The Bancorp (TBBK).
Due to trading activity on March 1st, 2012, Second Curve has disclosed a 5.1% ownership stake in The Bancorp with 1,692,832 shares. This is an increase of 37% in their position size since the end of 2011.
About Second Curve Capital
Prior to founding Second Curve, Tom Brown headed the financial services group at Julian Robertson's Tiger Management. As such, it should come as no surprise that his fund largely focuses on financials.
About The Bancorp
Per Google Finance, The Bancorp is "a financial holding company with a wholly owned subsidiary, The Bancorp Bank (the Bank). Through the Bank, the Company provides a range of commercial and retail banking services and related other banking services, which include private label banking, health savings accounts stored value (prepaid debit) cards and merchant card processing to both regional and national markets."
George Soros' hedge fund turned family office, Soros Fund Management, filed a 13G with the SEC in regards to Acacia Research Corp (ACTG). They've revealed a 5.64% ownership stake in the company with 2,801,180 shares.
This marks almost a 600% increase in their position size since the end of 2011. The disclosure was made due to trading activity that crossed the regulatory threshold on February 21st.
Per Google Finance, Acacia Research Corp "through its operating subsidiaries, acquires, develops, licenses and enforces patented technologies. The Company’s operating subsidiaries generate revenues and related cash flows from the granting of rights for the use of patented technologies, which its operating subsidiaries own or control.
Its operating subsidiaries assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, if necessary, with the enforcement against unauthorized users of their patented technologies.
In January 2012, the Company acquired ADAPTIX, Inc. In January 2012, the Company acquired patents relating to catheter ablation technology. In February 2012, the Company’s subsidiary acquired over 300 patents from Automotive Technologies International."
Soros Fund Management was recently listed as one of the top 10 hedge funds by net gains since inception.