Wednesday, December 19, 2012

What We're Reading ~ 12/19/12

Tiger Cubs' gains largely thanks to a handful of stocks [II Alpha]

In-depth research on how TV is set to change [SumZero]

Soon quarterly window-dressing won't work [Dealbreaker]

On investment analysis: invert, always invert [Psy-Fi]

A pitch on Las Vegas Sands [HedgeFundIntelligence]

The bull case on Q-Logic [Graham Disciple]

Update on the latest activity from Karsch Capital [ValueWalk]

The best fund manager you've never heard of [Bronte Capital]

Third Point makes $500m on Greek bonds [Telegraph]

Different kind of Black Friday coming for physical retailers [Fortune]

More hedge fund managers optimistic about 2013 [P&I]

Supercycle for forest products expected to send lumber prices up [VancouverSun]

How not to create your own hedge fund [Seeking Alpha]

Tiger Asia to pay $44 million for illegal trading [SEC]

Prime reason why Amazon's sales may be falling behind this holiday [AllThingsD]

Best places to work [Cnet]

24 things I know now that I wish I knew then [Moz]

Corvex Management Trims Ralcorp Position

Keith Meister's hedge fund firm Corvex Management filed an amended 13D with the SEC regarding its position in Ralcorp (RAH).  Per the filing, Corvex has disclosed a 3.69% ownership stake in RAH with 2,031,540 shares.

They've reduced their position by selling shares on December 14th, 17th, and 18th at prices around $89.xx.  In total, they've reduced their position size by around 30%, selling 883,456 shares recently.

Corvex originally went activist on RAH in August of this year, arguing that the company should sell itself or merge with another food company, and that's exactly what's happened.

ConAgra last month agreed to acquire Ralcorp for $5 billion.  Shares of RAH currently trade just slightly below the $90 per share offer.  Perhaps Corvex was simply taking money off the table to deploy to more compelling opportunities now.  We've also highlighted how Corvex has gone activist on ADT.

Per Google Finance, Ralcorp is "engaged in manufacturing, distributing and marketing private-brand food products and other regional and value-brand food products in the grocery, mass merchandise, drugstore and foodservice channels. The Company’s products include nutritional bars; snack mixes, corn-based chips and extruded corn snack products; crackers and cookies; snack nuts; chocolate candy; salad dressings; mayonnaise; peanut butter; jams and jellies; syrups; sauces; frozen griddle products, including pancakes, waffles and French toast; frozen biscuits and other frozen pre-baked products, such as breads and rolls; frozen and refrigerated doughs, and dry pasta."

Jeff Gundlach: Investors Should Hold Cash

DoubleLine Capital's CEO Jeff Gundlach recently appeared on Bloomberg to talk about how to invest in this environment and claimed that "investors should be holding cash."  Below are some excerpts from his interview as well as the video.

He noted that risk assets have diminishing returns and that he didn't see much value in the US stock market and said to act cautiously in the US bond market.

On how to trade this environment:

"I think that investors should be looking for lower prices on most risk assets in these developed countries with the exception of Japan... investors should be looking for the potential inflationary consequences of all this money printing exercise and the place to look for that is Japan."

On whether investors should get more disciplined and look at fundamentals:

"The fundamentals are always important but it does get trumped by policy decisions when policy decisions are so radical as has been the case in recent years…There seems to be diminishing returns on the various rounds of quantitative easing. It's almost like a half-life of a radioactive particle. The first quantitative easing brought 50%, the second brought a little more than half of that, the third half again, the fourth less than half again. It just seems that the idea of a Pavlovian reaction when you see quantitative easing that you should go out and buy risk assets--it has worked four times, but it doesn't seem like you are getting much bang for your buck any more…I would point out that gold, for example, hasn't done much of anything in the last couple of rounds of quantitative easing. It seems that the fundamentals are starting to exert themselves more powerfully against the backdrop of endless quantitative easing, so it's possible that the market support is close to finding its limit. This is why I think that investors should be holding cash and buying risk assets at lower prices once the fundamentals assert themselves."

On where to put money now:

"You've got to survive with virtually no return if that's the way you look at things. I actually recommend that for many investors. I think the small amount of money that you might make by trying to push it here as we get closer and closer to the end game where this thing might tail out--the amount of money you might make will be dwarfed by the amount of money you might lose when things reprice lower. Put it another way, if you just stay in cash and earn a small return or stay in a low risk investment and earn a middling single digit return--the money you might be able to make as we move into late 2013 or early 2014 with repricing, the amount of money you might make if you are able to deploy the money at that point will make all the difference. People always want investments to go up like a line…That's just not reality. You make 80% of your money in 20% of the time in investing and you have to be patient…I see some values in some of these foreign markets. I don't see a lot of value in the U.S. stock market and I think you have to play it safe in the U.S. bond market with funds that are really dedicated to having low volatility." 

Embedded below is the video of Gundlach's interview with Bloomberg TV:

Tuesday, December 18, 2012

Lee Cooperman Adds To McMoRan Exploration Stake

Lee Cooperman's hedge fund firm Omega Advisors just filed a 13G with the SEC regarding their position in McMoRan Exploration (MMR).  Per the filing, Omega has disclosed a 7.5% ownerships take in MMR with 12,417,655 shares.

This marks an increase of almost 70% in their aggregate amount of shares owned since the end of the third quarter.  The filing was made due to activity on December 6th.

It's also worth pointing out the fine print of Omega's filing: Their 7.5% ownership stake includes their position in McMoRan's 5 3/4% convertible perpetual preferred stock.

Readers will recall that Cooperman pitched McMoRan Exploration at the Great Investors' Best Ideas conference in late October. 

On December 5th, Freeport McMoran (FCX) announced it had agreed to buy McMoRan Exploration for a cash sum of approximately $2.1 billion where MMR's shareholders would also receive 1.15 units of a royalty trust.  The stock traded massively higher up to $15.xx on this news and it appears as though Cooperman added to his position.

Per Google Finance, McMoRan Exploration is "is engaged in the exploration, development and production of oil and natural gas in the shallow waters (less than 500 feet of water) of the Gulf of Mexico and onshore in the Gulf Coast area of the United States. McMoRan’s oil and gas operations are conducted through McMoRan Oil & Gas LLC (MOXY), its principal operating subsidiary. The Company has acreage positions in the shallow waters of the Gulf of Mexico and Gulf Coast areas."

Carl Icahn Files Amended 13D on Greenbrier: American Railcar Makes Bid

Carl Icahn just filed an amended 13D with the SEC on Greenbrier Companies (GBX).  Per the filing, another company Icahn is involved with, American Railcar (ARII), made a $20 per share in cash offer for Greenbrier (GBX). 

Icahn just recently established his new position in Greenbrier.  The Q3 issue of our Hedge Fund Wisdom newsletter drew attention to this last month and postulated that he had plans for the two companies (as both are involved in railroad freight car equipment). 

And now we see that ARII (with Icahn as its top investor) has made a bid for GBX.  Shares of GBX are now trading at a slight premium to this offer.

Robert Karr's Joho Capital Starts Yelp Position

Robert Karr's hedge fund Joho Capital filed a 13G with the SEC regarding shares of Yelp (YELP).  Per the filing, Joho has disclosed a 5.26% ownership stake in YELP with 894,795 shares.  Joho is one of the 'Tiger Cub' hedge funds as Karr previously worked at Julian Robertson's Tiger Management.

This is a brand new position for Joho Capital as they did not report a stake at the end of the third quarter on their most recent 13F filing with the SEC. The new 13G disclosure was required due to portfolio activity on December 7th.

Per Google Finance, Yelp is "operates a directory services and social networking website. Its online community provides information on urban city guide. The Company is based in the United States and its information helps people to find places to eat, shop, drink, relax, and play. It also operates a search engine for finding restaurants, dentists and hairstylists. It provides a space for feedbacks and reviews of people regarding their experiences with local businesses and services."

It's also worth pointing out that Yelp has recently been integrated into Apple's iOS platform via their maps application, allowing users to locate, rate, and review attractions. 

This integration could be a part of Joho's attraction to the name, in addition to the fact that shares have dropped from $23 down to $18 in recent months and have traded as low as $16.30.

For more on this hedge fund, we've also revealed one of Joho's short positions.

Monday, December 17, 2012

David Tepper Sees "A Lot" of Upside in Equity Markets: Latest Media Appearance

Appaloosa Management's founder David Tepper made a rare media appearance on CNBC this morning so we wanted to highlight the key takeaways and post up the full videos below.

Many of you will recall that one of Tepper's appearances a few years ago launched the aptly-titled 'Tepper rally' in the markets after he said he wouldn't fight the Fed.  So what's his take on the markets this time around?  Read on below:

David Tepper's Latest Thoughts

CNBC noted that Tepper's $16 billion hedge fund is up 25% net on the year. He thinks there's a "pretty good economy, growing 2% give or take" with tailwinds in housing and autos.  He highlighted how the Fed is focused on unemployment.

On Europe

Tepper also drew attention to Europe's situation, noting that "whenever Draghi wants to lower interest rates in Europe, he can do it."  He feels this aspect wasn't really well reported and that it's important because you have a "series of puts over in Europe" via central bank action.

On Credit Markets

The Appaloosa man said that credit markets are "rich and spreads are at pretty good levels right now."  He didn't want to call them in bubble territory, but said they're close.

Andrew Ross Sorkin asked Tepper if he was shorting some high yield, and Tepper said: "No.  I would short with a trillion dollar of stimulus of Fed coming in and short?  You can short it if you want, I'm not going to short it ... This money has to go someplace."

On Equity Markets

Tepper points out that there's a 12-handle PE on the S&P, saying "it's cheap relative to everything, it's the only market that hasn't really rose to new heights."  He says the situation in Washington is holding everybody back, noting that there could be 3-5% downside in the market if things become dire.

When asked how much upside was left in the equity markets, Tepper simply replied "a lot."  It's clear that Tepper continues to live by the mantra 'don't fight the Fed.'

While stocks have risen a solid amount since his original 'Tepper rally' call in 2010, he notes that the P/E hasn't expanded that much.  When asked about current valuation, he replied that "it is really, really interesting.  I hate to say how cheap it is."

On Inflation

He also touched on the Fed's actions and potential inflation:  "At some point everybody's concerned about inflation.  On the way to inflation in the real economy, you're gonna have another sort of inflation.  It's inflation in asset prices."

Tepper pointed out that a lot of hedge fund managers have taken money off the table because they "don't want to take a year-end loss," again pointing to the Fiscal cliff situation and noting the potential downside there.  Tepper says he's willing to take a chance (but you also have to keep in mind he's already up 25% this year."

Appaloosa's 2012 Playbook

Tepper laid out how his hedge fund has essentially played this year:  In December (2011), they waited for the LTRO and *then* invested.  In April, he thought the economy was slowing so he bought some puts (noting he saw low put vol at the time).  Then Draghi "gave away" a market put and Appaloosa got invested.  Then in front of the US election, he took down his long exposure, assuming the market would sell-off on Obama's re-election.  And when things sold off, he started buying some equities again, getting long into year-end.

As far as his allocations go, he outlined that "We probably have 70% of our book in bonds and stocks.  We move them up and down based on the individual names."  Then they use options to trade around volatility.

Tepper on Selling Due to Potential Capital Gains Increase

"Yea, we've basically taken a bunch of our long-term gains this year to lock-in these lower rates for our investors."  This is a phenomenon that's certainly happened across the markets and notably amongst hedge funds.  We'd cite Apple (AAPL) as a primary example as many prominent funds were sitting on a large position with large long-term gains.

Videos of Tepper's Interview

Embedded below are videos of Tepper's latest CNBC appearance:

Video 1

Video 2

Video 3

It looks like CNBC has the wrong code for the third video, but you can watch it here.

For more on the Appaloosa founder, head to our review of The Alpha Masters, a book that Tepper is profiled in.