Monday, October 23, 2017

Third Point's Q3 Letter: New Dover Position

Dan Loeb's hedge fund firm Third Point has released its third quarter letter.  Thus far for 2017, they're up 14.5% in their Offshore Fund and up 23% in their Ultra Fund.

While they feel earnings multiples are high by historical standards, they think earnings growth and low interest rates combine to make an environment ripe for higher valuations anyways.

The biggest risk they see currently?  A recession.  However, they feel the risk is low as economic growth rates are high.

Third Point's New Position in Dover (DOV)

During the third quarter, Third Point initiated a brand new position in Dover (DOV), an industrial conglomerate.  They've engaged management and think there's a 3 main areas for value creation: separate the energy segment, address the underearning core industrial portfolio, and optimize capital allocation.

Their letter also gives updates on DowDuPont, Honeywell (HON), as well as their activist position in Nestle.

Embedded below is Third Point's Q3 letter:

You can download a .pdf copy here.

Graham & Doddsville Latest Issue: Howard Marks Interview & Pitches on SPR, SERV

The Fall 2017 issue of Columbia Business School's newsletter Graham & Doddsville has been released.  In it, they feature an interview with Howard Marks of Oaktree Capital.  We've highlighted many of Marks' letters in the past.

The new issue also features Paul Sonkin of GAMCO Investors/Gabelli Funds who talks about learning from mistakes and pitching the perfect investment.

Additionally, they profile Jeremy Weisstrub's new firm, Aryeh Capital Management.  Prior to founding the new firm, he worked at Greenlight Capital.  He talks about his bullishness on shares of ServiceMaster (SERV), which includes businesses like Terminix, American Home Shield, and more.

The newsletter also features student investment pitches, including long Spirit Aerosystems (SPR), which was the winning pitch at the Women in Investing (WIN) Conference.

Embedded below is the fall issue of Graham & Doddsville:

You can download a .pdf copy here.

ValueAct Sells More Willis Towers Watson

In what has become somewhat of a regular occurrence as of late, Jeff Ubben's activist investment firm ValueAct Capital has again sold shares of its stake in Willis Towers Watson (WLTW).

Their latest Form 4 filed with the SEC shows they sold over 287,000 shares across October 11th through 13th at weighted average prices of between $156.04 and $157.34.

After these sales, their position size is now around 2.68 million WLTW shares remaining.

Per Google Finance, Willis Towers Watson "operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards. The Willis GB segment comprises four business units: Property and Casualty, Transport, Financial Lines and Retail Networks. The Willis Capital Wholesale and Reinsurance segment includes Willis Re; Willis Capital Markets & Advisory; Willis' wholesale business, and Willis Portfolio Underwriting Services. The Willis North America segment provides risk management, insurance brokerage and related risk services.

Friday, October 13, 2017

Hedge Fund Links ~ 10/13/17

Hedge funds ain't dead yet [WSJ]

Hedge funds dabbling in more obscure markets [WSJ]

Mark Yusko wanted to do round 2 of Buffett vs hedge funds bet [CNBC]

Warren Buffett decides not to do second wager against hedge funds [CNBC]

Nope, hedge funds are still in the dumper [Bloomberg]

Baupost one of the larger holders of Puerto Rican debt [The Intercept]

Man Group letting computers trade all on their own [CNBC]

Down $240 million on his 7-year short, a China bear gives in [Bloomberg]

Sun co-founder gets secretive hedge fund to make huge chip bet [Bloomberg]

Man starting world's biggest crypto fund calls bitcoin a bubble [Bloomberg]

Thursday, October 12, 2017

Viking Global Shows Deciphera Pharmaceuticals Stake

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding shares of Deciphera Pharmaceuticals (DCPH).  Per the filing, Viking now owns 8.1% of the company with over 2.47 million shares.

This is a newly disclosed public equity stake for the hedge fund, however Viking had previously invested privately in the company via Series C financing.  The filing was made due to portfolio activity on October 2nd as the company just completed its initial public offering (IPO).

For more from this hedge fund, we've posted up some other recent portfolio activity from Viking Global here.

Per Google Finance, Deciphera Pharmaceuticals is "a clinical-stage biopharmaceutical company. The Company is developing drugs to improve the lives of cancer patients. Its drug candidate includes DCC-2618, DCC-3014 and Rebastinib. Its proprietary kinase switch control inhibitor platform, inhibit the activation of kinases. DCC-2618, an orally administered kinase switch control inhibitor, for the treatment of gastrointestinal stromal tumors (GIST), advanced systemic mastocytosis (ASM), gliomas, including glioblastoma multiforme (GBM), and other solid tumors driven by pan-KIT or PDGFR alpha. DCC-3014 is an orally administered, potent and highly selective inhibitor of colony stimulating factor receptor 1 (CSF1R). Rebastinib is an orally administered, potent and selective inhibitor of the TIE2 immunokinase. Rebastinib binds potently into the switch pocket of TIE2, stabilizing the inhibitory switch and displacing the activation switch to block TIE2 signaling."

Carl Icahn's Herbalife Ownership Increases Due To Company Buyback

Activist investor Carl Icahn has filed an amended 13D regarding his position in Herbalife (HLF).  Per the filing, Icahn now owns 26.22% of the company.  This is up from his previous ownership stake of 24%, but it's not due to him buying more shares.  He still retains the same amount as he previously did: 22.87 million shares.

Herbalife recently announced results from its self-tender offer to buy around $600 million of its own stock.  It accepted over 6.73 million shares at $68 per share.

Sellers of stock received a contingent value right (CVR) for each share tendered that provides a right to payment should the company be taken private in the next two years.  After the tender completes, HLF will have around 87 million shares outstanding.

As a result, Icahn's ownership percentage increased without him doing anything.

And as we've highlighted previously,  Bill Ackman continues to be short Herbalife as well.

Per Google Finance, Herbalife Ltd. is "a global nutrition company. The Company develops and sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, as well as personal care products. Its operating segments are based on geographical operations in six regions: North America; Mexico; South and Central America; Europe, the Middle East, and Africa (EMEA); Asia Pacific, and China. The Company categorizes its products into five groups: weight management, targeted nutrition, energy, sports and fitness, outer nutrition, and literature, promotional and other. As of December 31, 2016, it marketed and sold approximately 140 products encompassing over 4,700 stock keeping units (SKUs) globally. Its product categories include meal replacement; protein shakes; drink mixes; dietary and nutritional supplements containing herbs, vitamins, minerals and other natural ingredients; facial skin care; body care; hair care products; sales tools, and educational materials."

Wednesday, October 11, 2017

What We're Reading ~ 10/11/17

Richard Thaler wins Nobel Prize for work on behavioral economics [NYTimes]

Thaler's book: Misbehaving: The Making of Behavioral Economics [Richard Thaler]

His other book, Nudge: Improving Decisions About Health, Wealth, and Happiness [Richard Thaler]

Warren Buffett bets on the fossil fuel highway [WSJ]

Victoria's Secret is on the right runway [Bloomberg]

Decoding the Chinese internet market [Slideshare]

A new round in the battle of the brands [Harding Loevner]

As goes the middle class, so goes TGI Fridays [Eater]

The thrill of losing money investing in a Manhattan restaurant [New Yorker]

Baupost Group Slightly Increases Veritiv Stake

Seth Klarman's investment firm Baupost Group has filed a 13G with the SEC regarding its position in Veritiv (VRTV).  Per the filing, Baupost now owns 19.45% of the company with over 3.05 million shares.

This means they've increased their position size by 9,339 shares since the end of the second quarter.  The filing was made due to portfolio activity on September 30th.

Per Google Finance, Veritiv is "a business-to-business distributor of print, publishing, packaging and facility solutions. The Company also provides logistics and supply chain management solutions to its customers. The Company's segments are Print, Publishing & Print Management (Publishing), Packaging, Facility Solutions, and Corporate & Other. The Print segment sells and distributes commercial printing, writing, copying, digital, wide format and specialty paper products, graphics consumables and graphics equipment. The Publishing segment sells and distributes coated and uncoated commercial printing papers. The Packaging segment provides standard, as well as custom and packaging solutions. The Facility Solutions segment sources and sells cleaning, break-room and other supplies such as towels, tissues, wipers and dispensers, can liners, commercial cleaning chemicals, soaps and sanitizers, sanitary maintenance supplies and equipment, safety and hazard supplies, and shampoos and amenities."

ValueAct Capital Pares Down Willis Towers Watson Stake Again

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC regarding its position in Willis Towers Watson (WLTW). We've highlighted previously how ValueAct has been trimming its WLTW stake and that trend continues.

This time around, the hedge fund sold 8,118 WLTW shares on October 6th at a price of $156.06.  After this sale, they're left owning 2.97 million shares.

This firm has been quite busy as of late and we also posted about another stock ValueAct has been trimming.

Per Google Finance, Willis Towers Watson "operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards. The Willis GB segment comprises four business units: Property and Casualty, Transport, Financial Lines and Retail Networks. The Willis Capital Wholesale and Reinsurance segment includes Willis Re; Willis Capital Markets & Advisory; Willis' wholesale business, and Willis Portfolio Underwriting Services. The Willis North America segment provides risk management, insurance brokerage and related risk services."

Tuesday, October 10, 2017

Invest For Kids Chicago Conference 2017 Right Around the Corner

The 9th annual Invest For Kids Chicago Conference is just under one month away.  It will feature top investors presenting their latest investment ideas in order to benefit smaller charitable organizations.  Over the past 8 years, they've supported 47 organizations with gifts of $150,000 to $225,000 each.  This year 7 organizations will be beneficiaries.

You can learn more about the event and register for the conference here.

Invest For Kids Conference Details

When: November 2nd, 2017 1:30pm to 5:30pm

Where: Harris Theater, Chicago

2017 Speakers List

Dmitry Balyasny, Balyasny Asset Management

Sam Zell, Equity Group Investments

Alec Litowitz, Magnetar Capital

Amos Meron, Empyrean Capital

Rick Rieder, Blackrock

Michael Sacks, GCM Grosvenor

Jimmy Levin, Oz Management

Bart Stephens, Blockchain Capital

Rajiv Jain, GQG Partners

Bethany McLean, Journalist

Arne Duncan, Emerson Collective

The event always has three goals: assemble highly regarded managers to share their ideas, bring the Chicago investment community together, and of course provide support for various smaller organizations in an effort to support underprivileged children. 

If you're near the Chicago area or in the Midwest, it's definitely worth checking out.

Click here to register for Invest For Kids Chicago.

Friday, October 6, 2017

Notes From Great Investors Best Ideas Conference (GIBI) Dallas 2017: Ackman, Einhorn & More

The 11th annual Great Investors Best Ideas (GIBI) Dallas Investment Symposium just took place where managers shared investment ideas to benefit The Michael J. Fox Foundation for Parkinson's Research and Vickery Meadow Youth Development Foundation.  Below are some brief notes on the event:

Notes From GIBI Dallas Conference 2017

David Einhorn, Greenlight Capital

Still owns a huge position in General Motors (GM) but has been trimming it since it's grown too large (risk management, position sizing, etc).  Still his largest position by a longshot though.  Still thinks it's very cheap and points to an opportunity for a new shareholder base to get into shares.  Likes they've gotten rid of its riskiest international business and is investing in autonomous cars and electric vehicles: the future.

He also likes Tempur Sealy (TPX).  Thinks estimates are way too low (notes that management's incentives are way higher).  The company had a dispute with Mattress Firm and stopped selling its mattresses there.  Despite that, customers still actively sought out the TempurPedic brand, so the co is replacing its lost Mattress Firm sales elsewhere at higher margins.  Thinks there's also a reasonable chance MF comes back to them since MF has lost sales.

Einhorn said that his 'bubble basket' of shorts in highflying tech stocks like Amazon and Tesla are valued like profits don't matter ... ever.  He says eventually people will wake up and profits will matter and their stocks will crater.  He also pointed to somewhat of a cult following status that is attached to Tesla's stock with all the hype that Elon Musk continuously builds with various projects.  There's around 30 stocks in Einhorn's bubble basket.   He noted he owns a Tesla, but also points out that the company probably lost $20-30k selling it.  Says company hasn't figured out how to make cars profitable on a unit basis.  You can also read Greenlight Capital's Q2 letter here.

Bill Ackman, Pershing Square Capital

Pitched his newest long: Automatic Data Processing (ADP).  Has an activist position.  Thinks it's a quality business: simple, not capital intensive, secular tailwinds (sees lots of growth ahead).  Automating employees.  Ackman thinks the stock's a double.  We've posted Ackman's presentation on ADP previously.

Also mentioned the GSEs he's involved with: Fannie Mae & Freddie Mac.  Still owns and thinks there's huge upside there.  He originally pitched these plays three years ago at the same conference.  Thinks they will eventually trade multiples higher of where they are now.

He's still short Herbalife (HLF) and has lost millions on the bet as the stocks' up around 40% from his average short price.  Said that of the risk factors considered for the position, Carl Icahn coming in and buying 20+% of the company wasn't one he considered.

Noted he still owns Howard Hughes (HHC) and while he doesn't see any immediate catalysts, thinks it's a long-term play as a high quality business.

Says average investor can be plenty concentrated with 10-15 holdings.  Biggest mistake of his career?  Not selling when new information emerged that didn't jive with his investment thesis.  You can read Pershing Square's Q2 letter here.

Tom Russo. Gardner Russo Gardner

Spoke about global brands and various companies still controlled by the founding families.  His best idea was the company hit with a scandal and PR crisis: Wells Fargo (WFC).  Previously he had noted how his WFC stake has remain unchanged (around 6% of his assets) and that he thought the company simply became too fixated singly on one variable (cross-selling) which lead to a bunch of accounts being opened in customers names.  The company now suffers from poor optics but on a risk level, direct financial harm has been modest and he has faith in the legal process.

Andrew Wellington, Lyrical Asset Management

A couple of picks:  Flex Ltd (FLEX), co is seeing double digit growth in its bottom line and 50% of FCF going to shareholders.  Trading around 12x earnings.

Affiliated Managers Group (AMG): asset management play, owns equity stakes in boutique management firms.  Says they own really good managers.  Trading around 12x NTM earnings.

Van Hoisington, Wasatch-Hoisington US Treasury Fund

He concluded that we're heading to a recession as the Fed has restrictive policies already in effect and money and credit are slowing noticeably.  Structural impediments to growth are over-indebtedness globally as well as adverse demographics.  Thinks rates will stay lower. 

Jeanie Wyatt, South Texas Money Management

A few ideas: Citigroup (C) as a value play.  Thinks it could re-rate from almost 1x book value to closer to 1.4x.  Since the crisis the company has a better situation and less subprime.

KAR Auction Services (KAR):  notes 20% EPS growth, end markets that are accelerating as well.  Trading just over 22x next year's earnings but with a big opportunity ahead as various leases will be coming to term.

Electronic Arts (EA): video game stock that's benefited from going over the top (OTT) as it leads to higher margins than the typical video game distribution model of physical games, etc.  Accelerating sales growth.  Also sees new potential upside in e-sports. 

Vodafone (VOD): Stock has traded sideways but the company has improved in end markets.  Thinks it offers good downside protection as sales growth has accelerated.

For more stock picks from recent investment conferences, we posted up notes from the Sohn San Francisco Conference yesterday.

Thursday, October 5, 2017

Notes From Sohn San Francisco Investment Conference 2017: Okada, McGuire & More

We've already posted up notes from the Next Wave Sohn San Francisco Conference which featured emerging managers.  Now it's time for the main event presentations which featured top hedge fund managers sharing investment ideas to benefit the Excellence In Investing For Children's Causes Foundation.

Notes From Sohn San Francisco Investment Conference 2017

Mark Okada, Highland Capital Management

Idea: Vistra (VST)

Business: Integrated IPP.  Thesis:  Strong market position in bottoming cyclical industry.  An attractive valuation, balance sheet optionality / M&A opportunity.  Lower leverage than peers.  Texas is a power island (barrier to entry) and a rapidly growing state.  Imminent supply rationalization.  Optimal capital structure of 3.5x leverage could drive 13% FCF yield.  M&A potential - lot of interest in the space from 'smart money.'

Valuation: Current share price $19, multiple ways to win and drive a higher share price

Mick McGuire, Marcato Capital Management

Idea: Deckers Brands (DECK)

Activist position that they haven't spoken about publicly before.  Own ~6% of the company, 2nd largest position in their fund.

Business:  Multi-branded footwear and apparel company.  Known primarily for the Ugg shoe brand but also own Hoka One One (cult running brand), Sanuk and Teva brands.

Activist agenda:  Focus on core Ugg brand; pursue sale or spin off of non-core brands.  Reduce costs (best in class consultants think that the cost savings opportunity is $150mm-$200mm.  Recapitalize balance sheet to 1x net debt/EBITDA.  Use proceeds of recapitalization and sale of brands to repurchase shares.  Align management comp with margin, return and TSR improvement.  Ugg has been cast as a fad but has continued to grow.  Retail expansion has hurt margins and revenue per store has continued to decline.  Margins can double from 9% to 19% with recommended strategy.

Valuation:  Opportunity to unlock value from non-core brands - $464 million with very modest topline expectations. $66 share price today - can get to $135 to $158 based on a multiple of 7.0x to 8.0x

Christopher Lord, Criterion Capital Management

Idea: MercadoLibre (MELI)

Business: largest eCommerce and payments platform in Latin America (based in Argentina).  Operates across 18 countries in largest markets in Brazil, Argentina, and Mexico.

Thesis:  Large TAM: $1.2T with long growth runway with more e-commerce adoption.  Adoption should be supported by increasing broadband penetration and smartphone penetration.  Created their own logistics marketplace to help with deliveries.  LatAm has a large emerging middle class.

Growth rates have begun to inflect.  Mobile is expanding the addressable market.  Payments is becoming important to the business - developed a proprietary payments platform similar to PayPal; increases the TAM to $1.8T; provides option value.  Have 27% share of ecommerce in LatAm - expected to increase by 2020.  Revenue growth estimates are significantly higher than consensus for 2018, 19, and 20.

Valuation:  looks conservative relative to TAM opportunity versus analogs like Alibaba.

Bonus short idea: iRobot (IRBT).  Very high share of robot vacuums but Shark will introduce its own robotic vacuum at a very competitive price.  Consensus estimates are too high given the competitive launch.

Nancy Davis, Quadratic Capital Management

Idea: shorting leveraged credit (equity tranche of CLOs)

Thesis: CLOs are popular investments among insurance companies.  Levered credit market will be the first place that will feel the brunt of monetary tightening.

Ways to play it: Short BDCs: TICC Capital (TICC) and Prospect Capital Corp (PSEC).  Valuations are way too high given where LIBOR rates are.

Glen Kacher, Light Street Capital

Idea: Delivery Hero (DHER)

Business: consists of consumer platform, tech stack to transmit orders to restaurants and delivery operations.  #1 player in 35/43 countries; several top markets: Germany, South Korea, Turkey, Saudi Arabia, Kuwait; by far the dominant player in long tail markets

Online food ordering marketplace that operates in Europe.  Marketplace model is ~90% of orders and delivery model is ~10% of orders.  Little to no capex required.  Dark kitchen model where players operate food operations in competitors like SpoonRocket, Sprig, and Munchery has struggled; better business is the delivery and platform for existing restaurants.

Thesis: TAM of 72bn Euros across all markets where online delivery is underpenetrated.  Pricing power to raise prices because they provide value ot restaurant customers.  Expect EBITDA margins to scale significantly.  Multiple ways to win (increase in food delivery TAM, increase in online penetration, increase in market share, delivery hero take rate, LT EBITDA margin.

Valuation: Implied share price of 76 Euros based on the 20x EV/EBITDA multiple, 127% upside to current

Carl Kawaja, Capital Group

Idea: Sony (SNE)

Return of the Daikaiju

Thesis: New management is changing the culture.  Content is king - Sony's presence is underappreciated and the business is under earning.  Gaming, image sensors, music are the businesses that are very valuable; they comprise 2/3 of operating income and 1/3 of revenue.

Gaming: business is large and is evolving to a recurring revenue stream model where you pay a monthly subscription fees supplemented by in-game purchases.  Additionally, they have had some success in mobile games, have the #2 selling mobile game.  Transition to digital game downloads should lift margins.

Sensors:  Photo and video is the future of social interaction so images will continue to be an important business.  Sony's image sensors are critical for digital camera option.  Hal of all CMOS image sensors are Sony; 100% share of iPhone 7 and 8.  Profitability has been deperessed.

Music:  ~92 million paid music subscriptions globally.  #1 music publisher globally with 30% share and #2 record label.  Streaming is now 60% of digital revenues.  Digital music is more profitable than physical music.

Valuation:  Expect 50% upside based on sum of the parts valuation

Oleg Nodelman, EcoR1 Capital

Idea: Ironwood Pharmaceuticals (IRWD)

Business: Biotech company whose primary drug is Linzess - drug for Irritable Bowel Syndrome Constipation (IBSC); marketed by Allergan.

Thesis: Addressable market of 40mm Americans.  Linzess has safety and efficacy superior to competitive drugs.  Management with a long term focus.  Option value with another 7 drugs in the pipeline - current price gives no value to these R&D efforts.

Valuation: $16 per share price but intrinsic value is as high as $43 per share.  Adding in total pipeline value could increase value of $200/share.  Trades at a discount to peers in the space at 9.6x EV/Revenue.

Dan Morehead, Pantera Capital

Idea: Cryptocurrency

Bitcoin is a digital currency protocol similar to TCP/IP for the internet.  Blockchain is a serial killer (better than a category killer).  Fiat currencies are poor stores of value - even the dollar has still lost over 90% of its purchasing power since 1950.

Huge addressable market of the industries that Bitcoin could disrupt.  The protocol layer (Bitcoin) captures most of the value in crypto currency versus the internet where the application that is built on the protocol layer captures most of the value.

Two potential ideas: Kik will be the first major company to tokenize their entire cap table.  Funfair is a fast, fair secular online casino; Funfair aims to cut out the middleman.

Be sure to also check out the pitches from emerging managers via our notes from the Next Wave Sohn San Francisco Conference 2017 as well.

Next Wave Sohn San Francisco Conference Notes 2017

We're posting up notes from the Sohn San Francisco Investment Conference 2017.  First up is the Next Wave Sohn event which features emerging managers sharing their investment ideas to benefit the Excellence In Investing For Children's Causes Foundation.

Next Wave Sohn San Francisco Conference Notes 2017

Vineer Bhansali, LongTail Alpha

- Investing with Multiple Unknown Equilibria

- Volatility indices are at all time lows as are correlations across assets classes, but fear is at an all-time high – 2 potential ways to play this:

Idea/Theme 1: Offensive - Position for rising rates with central bank put still in place

- Sectors: Banks and Financials: XLF

- Outright: Index Call Options (SPX, Nasdaq)

- Structured: Levered Risk Reversals

Idea/Theme 2: Defensive - Position: Geo political volatility that raises risk premiums

Sectors: GLD, OIL

Derivatives (Outright: Put spreads on equity indices, HYG, Structures: Dispersion (Rising Correlations)

Marcelo Desio, Lucha Capital Management

Idea: GoDaddy (GDDY): Misunderstood growth stock, dominant market position, large TAM and low CAC

Business: A lot more than a domain company; domain is an onboarding strategy to sell a range of other services (hosting, business applications); 17mm customers; compete very effectively in the SMB space


1) Incumbency and scale - 80% of SMBs aware of GoDaddy (Share: 19% of the 335mm domains under management)

2)  Efficient customer acquisition at ~$67

3) Very attractive unit economics; top of the range versus other SAAS companies

4) Highly sustainable growth runway: Large $23bn+ TAM and ARPU continuing to grow (International is growing high teens based on secular dynamics of internet penetration.  Demonstrated ability to take share in new markets like India - Entered 5 years ago and now has #1 domain share)

5)  ARPU growth -> incremental margins.  High operating leverage that should drive margin expansion from 64% to 68%.

6)  Incremental margins drive strong FCF

7)  FCF will drive beneficial capital allocation

8)  Strong valuation support: undervalued relative to similar companies in the tech space

Valuation: attractive return profile: $76 stock, +75%, 28% IRR through year end 2019

Risks:  PE overhang, international growth stalls, DIY becomes a viable competitor (mobile web use drives "appification"), larger well capitalized tech players compete more effectively

Gil Simon, SoMa Equity Partners

Idea: Coupa (COUP)

SAAS category killer you've never heard of.  Underfollowed company with significant upside.  IPO'd last October, <$2bn market cap.  Spend management not a sexy category - helps companies manage their business spending; ~600 customers

Business model: Cloud platform for managing spending (procurement, invoicing, expenses) that all companies do.  $159mm in TTM revenue.  Allows businesses to consolidate all spending under one platform.  Helps customers save money -3-4% on average (Coupa provides visibility which enables cost cutting and negotiating leverage with suppliers.  Case Study: Sanofi targeting 10bn euro of annual spend through Copua; replaced patchwork of 22 disparate procurement systems.  Big competitor is SAP Ariba.  Ease of use is the key competitive advantage versus legacy systems; Also flexibility, free to suppliers and ability to integrate with all ERP systems

Thesis:  Partner ecosystem rapidly expanding from 500 two years ago to 2,000 which is a leading bullish indicator.  Spend under management is rapidly expanding and expected to reach $350bn by FY18.  Expect sustained revenue growth well above consensus.  Valuation: Think it's a potential double.  Takeout optionality to boot: SAP and Oracle have been aggressive in this space.

Seth Wunder, black-and-white capital 

Idea: Lending Club (LC)

Business: marketplace for consumer lending that benefits from diversifed sources of capital including banks, insurance, companies, asset managers and retail investors.  Make money from origination fees and servicing fees.  Reduced spread versus banks: lenders get more yield and borrowers pay lower rates.  Can be very scalable but won't take over consumer lending.

Thesis:  Advantages for all market participants including borrowers and lenders (platform investors).

Borrowers: Get lower cost of borrowing, better application experience, NPS score of 78 versus credit card companies in low single digits.

Lenders: Access to short term, unsecured consumer credit, attractive risk adjusted returns, several purchase options (whole loans, fractional loans, securitizations), loan servicing handled by LC

Capital-lite model enables unconstrained growth.  Large TAM $1.1T unsecured consumer credit and $1.2T auto loans.  Harnessing technology and big data to originate loans.  Expect high incremental margins going forward as operational investment needs moderate.  EBITDA margins eventually >35%.  Management team changed out with seasonal veterans from "fin" and "tech" due to some past marketing issues.

Misconceptions:  High leverage - not true; net cash.  High credit risk - risk is borne by platform investors.  Dependent on Credit HFs to buy loans - not true; traditional banks like Citi provided 44% of funding for loans.  Cost of capital disadvantage:  Capital comes from investors, not balance sheet

Valuation:  LC shares are worth $17, 175% upside.  2.8x EV/2018 revenues - significant discount to peers.  15.0x EBITDA on $468mm gets you to $17 implied share price.

We've also posted up notes from the main event, so be sure to check out those pitches as well: notes from the Sohn San Francisco Investment Conference 2017.

Wednesday, October 4, 2017

What We're Reading ~ 10/4/17

The Four: The hidden DNA of Amazon, Apple, Facebook & Google [Scott Galloway]

The main fundamental skills of all investing [Collaborative Fund]

Skilled managers should hold fewer stocks [Institutional Investor]

Machine learning for investors: a primer [Alpha Architect]

Blue skies ahead for John Malone's LiLAC Group [Barrons]

Benedict Evans on the future of cars [EconTalk]

On the characteristics of aggregators [Stratechery]

Elon Musk versus the haters [Institutional Investors]

The new world of monopoly? What about flying? [Marginal Revolution]

Amazon makes up 43% of all online sales [Inc]

Millennials are moving to the suburbs, buying big SUVs [Bloomberg]

Media companies are finally getting serious about data and targeted advertising [Adweek]

Shopify is an excellent business [Tom Tunguz]

A negative piece on Shopify [Citron Research]

Warren Buffett Acquires Pilot Flying J

Warren Buffett's Berkshire Hathaway has made another big buy.  It's just been announced that Berkshire Hathaway will be acquiring Pilot Flying J, the US's largest truck stop operator.  The chain owns 750 truck stops.

Berkshire has actually acquired a 38.6% minority stake that will eventually see them become the majority shareholder in 2023 when they acquire an additional 41.4% equity stake.  The Haslam family will retain a 20% ownership stake.  The company sees around $20 billion in revenue and has over 26,000 employees.

In a statement, Buffett said that, "The company has a smart growth strategy in place and we look forward to a partnership that supports the trucking industry for years to come."

For more from this investor, we posted a recent Warren Buffett's interview on a myriad of topics.

Highfields Capital Trims Silver Run Acquisition Stake

Jonathon Jacobson's hedge fund firm Highfields Capital has filed a Form 4 with the SEC regarding shares of Silver Run Acquisition Corp II (SRUN). 

Per the filing, Highfields sold over 3.24 million shares of SRUN on September 29th at a price of $10.17.  After this transaction, they were left with a position of over 8.25 million shares.

Silver Run Acquisition II is a private equity backed oil and gas play led by a former executive of Anadarko Petroleum.  Recently, in August, the company announced it was merging with Alta Mesa and Kingfisher Midstream to create a $3.8 billion company.

Tuesday, October 3, 2017

Viking Global Shows Abeona Therapeutics Stake

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding shares of Abeona Therapeutics (ABEO.  Per the filing, Viking now owns 5.6% of the company with over 2.23 million shares.

This is a newly disclosed equity stake for the firm and the filing was made due to portfolio activity on September 22nd.

For more on this hedge fund, we've posted some other recent portfolio activity from Viking Global here.

Per Google Finance, Abeona Therapeutics is a "clinical-stage biopharmaceutical company developing novel gene therapies for life-threatening rare genetic diseases. The Company’s lead programs include ABO-102 (AAV-SGSH), an adeno-associated virus (AAV) based gene therapy for Sanfilippo syndrome type A (MPS IIIA) and EB-101 (gene-corrected skin grafts) for recessive dystrophic epidermolysis bullosa (RDEB). It is also developing ABO-101 (AAV-NAGLU) for Sanfilippo syndrome type B (MPS IIIB), ABO-201 (AAV-CLN3) gene therapy for juvenile Batten disease (JNCL), ABO-202 (AAV-CLN1) for treatment of infantile Batten disease (INCL), EB-201 for epidermolysis bullosa, ABO-301 (AAV-FANCC) for Fanconi anemia disorder and ABO-302 using a novel CRISPR/Cas9-based gene editing approach to gene therapy for rare blood diseases. The Company also has a plasma-based protein therapy pipeline, including alpha-1 protease inhibitor (SDF Alpha) for inherited COPD, using its proprietary Salt Diafiltration ethanol-free process."

Wednesday, September 27, 2017

What We're Reading ~ 9/27/17

Your tolerance for investment risk is probably not what you think [WSJ]

Is value investing dead? Depends on how you measure it [WSJ]

What do the best investors do that the rest don't? [Behavioral Value]

We're going to need more Lithium [Bloomberg]

Mastering three strategies of organic growth [McKinsey]

DaVita: Warren and Charlie's excellent insurance gambit [SIRF]

Old interview with Chuck Akre - never sell the gems [Value Research]

The history of Sears predicts nearly everything Amazon is doing [The Atlantic]

Don't believe the headlines, traditional retailers are thriving online [VentureBeat]

How Kirkland Signature became one of Costco's biggest successes [WSJ]

Altaba's endgame could reward investors nicely [Barrons]

Netflix's Sarandos aims to build the next great Hollywood studio [Bloomberg]

Our entire credit bureau system is broken [The Verge]

Snapchat's influencers are fleeing to Instagram for money [Bloomberg]

How successful people make decisions differently [Fast Company]

Tuesday, September 26, 2017

Senator Investment Group Takes D.R. Horton Stake

Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a 13G with the SEC regarding shares of D.R. Horton (DHI).  Per the filing, Senator now owns 5.34% of the company with 20 million shares (inclusive of 5 million shares underlying call options).

This is a newly disclosed stake for the investment firm.  The filing was made due to portfolio activity on September 15th.

For more on this hedge fund, we highlighted another stock Senator has been buying.

Per Google Finance, DR Horton is "a homebuilding company. The Company constructed and sold homes in 27 states and 79 markets, as of September 30, 2015. The Company's segments include its 39 homebuilding divisions, its financial services operations and its other business activities. In the homebuilding segment, the Company builds and sells single-family detached homes and attached homes, such as town homes, duplexes, triplexes and condominiums. The Company's 39 homebuilding divisions are aggregated into six segments: East Region, South Central Region, Midwest Region, West Region, Southwest Region and Southeast Region. In the financial services segment, the Company sells mortgages and collects fees for title insurance agency and closing services. The Company has subsidiaries that conduct insurance-related operations; construct and own income-producing rental properties; own non-residential real estate, including ranch land and improvements, and own and operate oil and gas-related assets."

12 West Capital Shows Laureate Education Stake

Joel Ramin's hedge fund firm 12 West Capital has filed a 13G with the SEC regarding shares of Laureate Education (LAUR).  Per the filing, 12 West now owns 6.5% of the company with over 2.3 million shares.

This is a newly disclosed equity position for the firm.  The filing was made due to activity on September 15th.

Per Google Finance, Laureate Education "provides higher education programs and services to students through an international network of licensed universities and higher education institutions (institutions). The Company’s programs are provided through institutions that are campus-based and Internet-based, or through electronically distributed educational programs (online). It offers its educational services through six segments: Brazil; Mexico; Andean and Iberian; Central America and United States (U.S.) Campuses; Online and Partnerships; and Europe, Middle East, Africa and Asia Pacific (EMEAA). Its institutions also offer an education that emphasizes professional-oriented fields of study with undergraduate and graduate degrees in a wide range of disciplines. As of June 30, 2017, the Company’s global network of 69 institutions comprised 57 institutions it owned or controlled, and an additional 12 institutions that it managed or with which it had other relationships. "

Darsana Capital Shows Stake in Social Capital Hedosophia Holdings (IPOA.U)

Anand Desai's hedge fund firm Darsana Capital has revealed a stake in Social Capital Hedosophia Holdings (IPOA.U).  Per a 13G filed with the SEC, Darsana now owns 5.07% of the company with 3.5 million shares.

This is a new position for the firm as shares of IPOA.U were just floated recently.  Hedosophia is a vehicle used by Chamath Palihapitiya's Social Capital to invest in 'unicorn' private tech companies.  They're trying to create a new model for taking private companies public via this 'blank check' structure.

Prior to founding Darsana, Desai worked at Eton Park Capital.

Per Google Finance, Social Capital Hedosophia Holdings is "a blank check company. The Company is formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. The Company seeks to focus on search for a target business operating in the technology industries. The Company had not identified any business combination target."

Monday, September 25, 2017

Eminence Capital Increases Arris Group Stake

Ricky Sandler's hedge fund firm Eminence Capital has filed a 13G with the SEC regarding its stake in Arris Group (ARRS).  Per the filing, Eminence now owns 5.3% of the company with just over 10 million shares.

This is an increase of 858,147 shares as they previously owned 9.15 million shares at the end of the second quarter.  This most recent filing was made due to portfolio activity on September 12th.

For more on this hedge fund, you can view other portfolio activity from Eminence Capital here.

Per Google Finance, Arris Group is "a media entertainment and data communications solutions provider. The Company operates in two segments: Customer Premises Equipment (CPE), and Network & Cloud (N&C). The Company enables service providers, including cable, telephone, and digital broadcast satellite operators, and media programmers to deliver media, voice and Internet Protocol (IP) data services to their subscribers. It is engaged in offering set-tops, digital video and IP television (IPTV) distribution systems, broadband access infrastructure platforms, and associated data and voice CPE, which it also sells directly to consumers through retail channels. Its solutions are complemented by an array of services, including technical support, repair and refurbishment, and system design and integration. The CPE segment consists of CPE Products-Video and CPE Products-Broadband. The N&C segment consists of Infrastructure Products, Cloud Software and Global Services."

Fairholme Capital Adds To St. Joe Position

Bruce Berkowitz's investment firm Fairholme Capital has filed an amended 13D with the SEC regarding its stake in St. Joe (JOE).  Per the filing, Fairholme now owns 40.5% of the company with just over 27 million shares.

The filing notes that Berkowitz was out buying across August and into early September, at prices ranging from $18.3016 to $19.2174.  In total, he purchased just over 1.55 million shares.

For more on this manager, we've also highlighted other recent portfolio activity from Fairholme Capital here.

Per Google Finance, St. Joe is "a real estate development, asset management and operating company. The Company operates through five segments: residential real estate; commercial real estate; resorts and leisure; leasing operations, and forestry. Its residential real estate segment plans and develops primary residential and resort residential communities of various sizes on its existing land. Its commercial real estate segment plans, develops, manages and sells real estate. Resorts and leisure segment features a portfolio of vacation rentals and hotel operations, as well as golf courses, a beach club, marinas and other related resort amenities. Its leasing operations business includes its retail and commercial leasing. Its forestry segment focuses on the management of its timber holdings in Northwest Florida."

ValueAct Capital Trims Willis Towers Watson Stake Again

Jeff Ubben's activist investment firm ValueAct Capital has filed yet another Form 4 with the SEC regarding its stake in Willis Towers Watson (WLTW).

Per the filing, ValueAct now owns 3.28 million shares. They sold 41,348 shares on September 18th at $152.38 per share. As we've highlighted previously, they've been reducing their WLTW position size.

For more on this fund, we've also posted about another stock ValueAct has been selling as well as one stock ValueAct has been buying.

Per Google Finance, Willis Towers Watson "operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards. The Willis GB segment comprises four business units: Property and Casualty, Transport, Financial Lines and Retail Networks. The Willis Capital Wholesale and Reinsurance segment includes Willis Re; Willis Capital Markets & Advisory; Willis' wholesale business, and Willis Portfolio Underwriting Services. The Willis North America segment provides risk management, insurance brokerage and related risk services."

Friday, September 22, 2017

Hedge Fund Links ~ 9/22/17

Klarman's Baupost Group plans to return some investor money [Bloomberg]

Hugh Hendry closes hedge fund after 15 years [Bloomberg]

Conatus Capital to shut down [Bloomberg]

Bridgewater to launch fund in China [WSJ]

Hedge funds bet on bright future for metals [Reuters]

The man running California's lean, mean endowment machine [Bloomberg]

In private equity, illiquidity is a feature not a bug [Abnormal Returns]

Private assets are the new hedge funds [Bloomberg]

The next quant meltdown [ii alpha]

Wealthy families are cooling on hedge funds except in one area [Quartz]

How hedge funds are handling a possible disaster [Bloomberg]

False peace for markets? Trader is betting millions on it [NYTimes]

Thursday, September 21, 2017

8th Annual Sohn San Francisco Investment Conference

The 8th annual Sohn San Francisco Investment Conference is just around the corner on October 4th.  The event will feature top investment managers sharing their latest ideas to benefit charities.  The event is presented by the Excellence in Investing for Children's Causes Foundation, which has raised more than $1.2 million to support education and pediatric cancer care. 

This is the premier Bay Area investor event, so if you're in the area or nearby, don't miss it.  You can register for the conference by clicking here.

Conference Details

When: October 4th, 2017

Where: Hyatt Regency San Francisco

Sohn San Francisco Speakers List

- Mark Okada, Highland Capital Management

- Mick McGuire, Marcato Capital Management

- Carl Kawaja, Capital Group

- Christopher Lord, Criterion Capital

- Oleg Nodelman, EcoR1 Capital Fund

- Jeff Shen, BlackRock

- Nancy Davis, Quadratic Capital

- Glen Kacher, Light Street Capital

- Dan Morehead, Pantera Capital

- David Crane, Govern for California

Next Wave Sohn Speakers

Additionally, a group of emerging managers will share their ideas as a prelude to the main event.  Here's the list:

- Vineer Bhanshali, LongTail Alpha

- Marcelo Desio, Lucha Capital

- Gil Simon, SoMa Equity

- Seth Wunder, black-And-white Capital

The event's proceeds benefit Bay Area organizations that are focused on improving educational opportunities and life outcomes for underserved youth.  Additionally, a portion benefits the Sohn Conference Foundation with its efforts to treat and cure pediatric cancer.

For more information on the event and to register, please visit

Wednesday, September 20, 2017

What We're Reading ~ 9/20/17

You need to do what others don't [Ian Cassel]

The case for stock buybacks [Harvard Business Review]

5 common mental errors that sway your decision making [James Clear]

Why is value investing so difficult? [Behavioural Investment]

Best Buy's secrets for thriving in the Amazon age [NYTimes]

Why augmented reality is about to take over your world [Buzzfeed]

What's the true total addressable market of search? [Value Venture]

Google Travel is worth $100 billion - even more than Priceline [Skift]

Profile of's founder [FT]

'Netflix for theaters' sending industry into a frenzy [NYPost]

When will self-driving cars make conventional cars worthless? [Quartz]

Why listen to earnings calls when artificial intelligence can do it better? [Institutional Investor]

The big data breach at Equifax has alarming implications [The Economist]

How Casper wants to sell you sleep [Wired]

ValueAct Trims CBRE Group Position

Jeff Ubben's activist firm ValueAct Capital has been busy lately.  In an amended 13D filed with the SEC, ValueAct has disclosed that they now own 8.5% of CBRE Group (CBG) with 28.87 million shares.

This is down from the 34.37 million shares they owned at the end of the second quarter.  In their most recent activity, the filing notes they sold 5.5 million shares at $35.90 in a block trade on September 15th.

For more on this firm, yesterday we highlighted how ValueAct added to its KKR stake again.

Per Google Finance, CBRE Group "operates as a commercial real estate services and investment company. The Company operates through the segments: The Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; Global Investment Management, and Development Services. The Company provides commercial real estate services under the CBRE brand name, investment management services under the CBRE Global Investors brand name and development services under the Trammell Crow Company brand name. The Company's business is focused on commercial property, corporate facilities, project and transaction management, tenant/occupier and property/agency leasing, capital markets solutions (property sales, commercial mortgage brokerage, loan origination and servicing) real estate investment management, valuation, development services and proprietary research."

Tuesday, September 19, 2017

Ray Dalio's Reading List

Ray Dalio, the founder of hedge fund Bridgewater Associates, has penned a book called Principles.  He's been doing various interviews about it and recently joined Tim Ferriss' podcast.  During the interview, Dalio outlined some of the books he's read and enjoyed, as well as others he has stacked up in a pile that he's going to read.  He said curiosity is the driving force behind him reading so much.

Ray Dalio's Reading List

  Einstein's Mistakes: The Human Failings of Genius by Hans Ohanian: A book Dalio's already read and enjoyed.

  Sapiens: A Brief History of Humankind by Yuval Noah Harari: #1 international bestseller by a renowned historian.

  The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis: A look at Daniel Kahneman and Amos Tversky's studies on the decision-making process.

  The Upside of Inequality: How Good Intentions Undermine the Middle Class by Edward Conard: The scourge of America's economy isn't the success of the 1%.

  The Serengeti Rules: The Quest to Discover How Life Works and Why It Matters by Sean Carroll: Award winning biologist examines questions about how the natural world is regulated.

  From Bacteria to Bach and Back: The Evolution of Minds by Daniel Dennett: A look at how the human mind has developed its ability to crate, imagine, and explain.

Dalio was also asked to list books he would give to anyone graduating high school or college.  Here were his 3 picks:

  The Lessons of History by Will and Ariel Durant: A concise survey of the culture and civilization of mankind from Pulitzer Prize winning historians.

  River Out of Eden: A Darwinian View of Life by Richard Dawkins: How did life begin and where is it heading?

  The Hero With a Thousand Faces by Joseph Campbell: Combining the insights of modern psychology with comparative mythology.

Be sure to also check out Dalio's own new book, Principles, about all he's learned over the years.

And if you're looking for recommendations from more smart investors, check out Charlie Munger's recommended reading list, as well as many others linked in the right sidebar of Market Folly.

Senator Investment Group Boosts MGM Resorts Stake

Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a 13G with the SEC regarding its stake in MGM Resorts International (MGM).  Per the filing, Senator now owns 5.57% of the company with 31.5 million shares, which includes 22 million shares of stock issuable upon exercise of call options.

This is an increase of over 24 million shares since the end of the second quarter when they only owned 7.5 million shares.  The filing was made due to activity on September 12th.

For more on this hedge fund, we posted up another stock Senator had been buying.

Per Google Finance, MGM Resorts International "owns and operates casino resorts. The Company operates in two segments: domestic resorts and MGM China. Its domestic resorts segment consists of non-gaming operations, including hotel, food and beverage, entertainment and other non-gaming amenities. Its casino operations feature a range of slots, table games, and race and sports book wagering. Its MGM China’s operations consist of the MGM Macau resort and casino, and the development of an integrated casino, hotel and entertainment resort on the Cotai Strip in Macau. Under its resort operation, the Company's casino resorts offer gaming, hotel, convention, dining, entertainment, retail and other resort amenities. It owns Primm Valley Golf Club at the California/Nevada state line and Fallen Oak golf course in Saucier, Mississippi, among others. It owns and manages CityCenter Holdings, LLC, located between Bellagio and Monte Carlo."

ValueAct Capital Adds To KKR Position Again

Jeff Ubben's activist firm ValueAct Capital has filed an amended 13D with the SEC regarding its stake in KKR (KKR).  Per the filing, ValueAct now owns 8.9% of the company with over 41.9 million shares.

This is the second time this month they've disclosed purchases in KKR.  Their latest round of buying came on September 6th through 8th, as well as September 11th through 15th, and on September 18th too.

In total, they acquired 6.75 million shares at prices ranging from $18.19 to $19.02. 

The filing also notes they also have exposure via cash-settled swaps with respect to 3.65 million shares.

Per Google Finance, KKR is "a global investment firm that manages investments across multiple asset classes, including private equity, energy, infrastructure, real estate, credit and hedge funds. The Company's business offers a range of investment management services to its fund investors, and provides capital markets services to its firm, its portfolio companies and third parties. The Company conducts its business with offices across the world, providing it with a global platform for sourcing transactions, raising capital and carrying out capital markets activities. The Company operates through four segments: Private Markets, Public Markets, Capital Markets and Principal Activities. It operates and reports its combined credit and hedge funds businesses through the Public Markets segment. The Capital Markets segment consists primarily of its global capital markets business. Through its Principal Activities segment, the Company manages the firm's assets and deploys capital."

Monday, September 18, 2017

Soros Fund Buys Shares in Exa & Sigma Designs

George Soros' family office Soros Fund Management has filed two separate Form 4's with the SEC recently.

Soros Adds To Exa Stake

First, Soros' Form 4 regarding Exa (EXA) indicates that the firm was buying EXA shares on September 11th through 13th.  In total, they acquired 159,500 shares at weighted average price of $14.1881.  After these purchases, Soros now owns over 1.66 million shares of EXA, or 11.07% of the company.

Per Google Finance, Exa is "develops, sells and supports simulation software and services that manufacturers use in design and engineering processes. The Company focuses primarily on the ground transportation market, including manufacturers in the passenger vehicle, highway truck, off-highway vehicle and train markets, as well as their suppliers. Its product, PowerFLOW, is a software solution for simulating fluid flow problems, including aerodynamics, thermal management and aeroacoustics, or wind noise. PowerFLOW uses its Digital Physics technology that enables it to predict fluid flows. PowerFLOW directly simulates unpredictable turbulent scales. The PowerFLOW software suite includes the simulation engine and grid generation engine, along with pre- and post-processing software products. The software is delivered in client/server architecture, or through its cloud-based offering, ExaCLOUD. With the ExaCLOUD solution, various client features and functions are accessed through a Web browser."

Soros Boosts Sigma Designs Stake

Per a Form 4, Soros has also disclosed it acquired 65,625 shares of Sigma Designs (SIGM) on September 12th and 14th at a weighted average price of $5.8562.  After the buys, Soros now owns over 5.08 million shares of SIGM.

Per Google Finance, Sigma Designs is "a provider of global integrated semiconductor solutions. The Company offers media platforms for use in the home entertainment and home control markets. The Company sells its products into markets, including smart television, media connectivity, set-top box and Internet of Things (IoT) devices. The Company's media processor product line consists of a range of functionally similar platforms that are based on integrated chips, embedded software and hardware reference designs. The Company's media connectivity product line consists of wired home networking controller chipsets that are designed to provide connectivity solutions between various home entertainment products and incoming video streams. The Company's IoT devices product line consists of its wireless Z-Wave chips and modules. The Company is engaged in the license of its internally developed intellectual property. It also offers legacy products that are sold into prosumer and other industrial applications."

Trian Fund Sells Some Sysco

Nelson Peltz's activist firm Trian Fund Management has filed a Form 4 with the SEC regarding its stake in Sysco (SYY).  Per the filing, Trian sold 372,314 shares on September 12th and 13th at weighted average price of $53.0893.

After these transactions, Trian still owns over 43.59 million shares.  The filing notes this sale was made in conjunction with the liquidation of an investment fund managed by Trian.

For more from this firm, we recently posted up Trian's presentation on Procter & Gamble (PG).

Per Google Finance, Sysco is "a distributor of food and related products primarily to the foodservice or food-away-from-home industry. The Company's segments include Broadline, SYGMA and Other. The Broadline segment includes its Broadline operations located in the Bahamas, Canada, Costa Rica, Ireland, Mexico and the United States. Broadline operating companies distribute a full line of food products and a range of non-food products to both traditional and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. SYGMA operating companies distribute a full line of food products and a range of non-food products to certain chain restaurant customer locations. The Other segment includes the Company's specialty produce; custom-cut meat operations; lodging industry segments; a company that distributes specialty imported products; a company that distributes to international customers, and Sysco Ventures platform."

Thursday, September 14, 2017

Boyar's Latest Issue Profiling 3 Stocks That Have Declined ~23% On Avg

We wanted to bring your attention to a limited-time offer from our friends at Boyar Research. Normally their equity research reports, which many of the world’s most successful institutional investors have been subscribing to for over 40 years, are sold exclusively on a subscription basis. These subscriptions cost tens of thousands of dollars. However, for a very limited amount of time, Boyar is making its most recent issue available for purchase for just $945. This issue features three companies including AMC Entertainment Holdings, The TJX Companies, and Harley-Davidson that they believe to be selling at significant discounts to their estimate of intrinsic value.

Act quickly as this offer expires on September 18th at Noon EST.

To take advantage of this limited time offer, please click here.

Investment highlights of companies featured in Boyar's latest issue:

1)  AMC Entertainment Holdings, Inc.  (current price $15.20, Boyar’s 2019 estimate of intrinsic value is $26 per share)

AMC has declined ~60% from its 52-week high due to both weak attendance trends as well as fears that controlling shareholder Wanda could be forced to sell its stake. However, the upcoming film slate looks promising, which could cause a quick rebound in industry sentiment. Even assuming revenue growth slows from 8% (2014-2016 average) to 4% by 2020 and attendance fails to recover to 2016 levels, Boyar estimates AMC’s intrinsic value could exceed $26/share by YE2019 using conservative multiples.

2)  The TJX Companies, Inc. (current price $73.47, Boyar’s 2021 estimate of intrinsic value is $120 per share)

In Boyar’s view, TJX is a classic case of throwing the “baby out with the bathwater” as shares have declined ~10% from their 52-week high in sympathy with the carnage experienced by traditional brick and mortar retailers (as well as margin pressures Boyar believes to be temporary). However TJX has significant growth opportunities and unlike most retailers possesses a “moat” that protects it from online competition.

3) Harley-Davidson, Inc. (current price ~$47.96, Boyar’s 2019 estimate of intrinsic value is $62 per share)

HOG has declined ~25% from its 52-week high due to a multitude of factors, including a reduction in shipping guidance as well as fears associated with the greying of its traditional customer base. However the company possesses an iconic brand, sells at a below market multiple, and sports an ~11% FCF yield. Boyar believes HOG has a significant opportunity for capital appreciation if some of its marketing initiatives are properly executed.

This offer expires on September 18th at Noon EST, click here to purchase.

For additional information on Boyar Research or this offer, please email

Wednesday, September 13, 2017

Delivering Alpha Conference Notes 2017: Robertson, Dalio, Chanos, Cooperman & More

CNBC and Institutional Investor's Delivering Alpha Conference just took place and featured many big name speakers.  Here's notes from the event itself and summaries of television interviews as well:

Delivering Alpha Conference Notes 2017

Julian Robertson (Tiger Management)

Robertson noted that interest rates need to increase because there's a bubble forming in the stock market.  Since rates are low, stocks don't really have much in the way of competition for money.  He also predicts that Trump will ask Janet Yellen to stay on as Federal Reserve Chair.

He recently got back into Alibaba (BABA).  He previously owned it at "a very low price" (seven years ago) but sold it around $100 but now he's back in.  Says it's unbelievable how the company has seen 50% in earnings.  While other investors claim it to have accounting issues, Robertson said, "It would have to be such a giant fraud.  I mean, I can't imagine anything would be that colossal."

Argued that Apple (AAPL), Facebook (FB), and Google (GOOG) are cheaper than they would have been in the 1960's, 70's or 80's.  On Netflix (NFLX), he noted "does anyone not like it?"  He said it "might be a little out of reach" now but it's still tempting him because it's run by good people and he loves it.

He likes the cruise industry, saying that "(It) has come of age.  And older people my age are attracted to the cruise ship industry.  And they are booming right now, and all over the world they are booming.  And I think they're for the golden oldies."

Robertson still also owns Air Canada: "We got into it at around 8 or 9.  And it's now 23, approaching 24, and the multiple is about the same as when we got in, which is all of five times earnings.  So we have too much Air Canada, but I can't make myself sell it."

Also noted he doesn't think he'll ever understand Bitcoin.

He also continued to share his view that part of the hedge fund crisis is exacerbated by the fact that there's so many of them now and they compete against each other.

Robertson also gave advice to the younger generations: be sure that you love the field and let that be what guides you.

Ray Dalio (Bridgewater Associates)

Dalio's biggest concerns were the following: wealth gap, social conflict, and various financial burdens (debts and pensions).

"I think we're probably in a 2.5% type of growth environment.  I mean, the real question is, to some extent, whether you can unleash the productivity by some of the changes that a pro-business environment can produce."

He thinks tax reform etc will be a watered down version and will come later.

He likened the current environment to 1937 in terms of the early stages of a tightening.

Dalio thinks that we're in an environment with a lot of conflict: political, conflict between parties, conflict between countries.  "This is very important.  This is even more important than how the tax changes are going to take place."

The Bridgewater founder then talked about balancing alpha and beta.  He said gold is essential and part of that balance.  He called it "an effective diversifier of assets" as well as "an alternative version of cash."  He feels it should be 5-10% of everybody's portfolio.

He also thinks it'd be terrible if Gary Cohn left the administration and it'd be bad for the market too.

When asked what he's most worried about, Dalio mentioned risks like North Korea, but said his bigger worry is long-term: wealth and social gap and the conflicts that arise from that.  He's worried about the various debt and pension burdens.

We also recently posted Ray Dalio's TED talk which takes you inside a meeting at Bridgewater.  He also has penned a new book, Principles.

Leon Cooperman (Omega Advisors)

He said that "Conditions that normally lead to significant market decline are either not present or not forecastable."

"The market is in a zone of fair and full valuation.  I see very few signs of exuberance."

Stocks mentioned by Cooperman include First Data (FDC), which he's owned for some time now and called very cheap.

Also, United Continental (UAL), which he felt has solid management that's identified a lot of cost opportunities.  He thinks earnings there can see around 15% over the next few years.  Operating profits could rise by 50% over the next few years and the company has bought back 2% of its shares

He also pitched two energy ideas: Hess (HES), as well as WPX Energy (WPX).  "The solution for low oil prices is low oil prices.  These two (stocks) have growing production profiles and a net asset value well above current prices at existing oil prices."  He thinks oil is headed higher to $60.  Says the sector has been overly discounted.  Says Hess in particular will increase production.

He also likes Shire (SHPG), citing its growth, positive pipeline, and the expectation of stock buybacks.

Said bonds look like they're in a bubble but at same time notes the Fed has been 'forcing people into risk' via its monetary policies.  It will change one day he says, but not yet.

Boaz Weinstein (Saba Capital)

He warned investors to avoid junk bonds.  Argued that half or a third of junk bonds today are held by retail investors, who have a ton of exposure, partly due to the rise of ETFs.  He feels the high yield market is overheated and he's short bonds of various retailers and hospitals.  At the same time, he's long equity of some of those same companies.  "Equity is at a much more rational price and credit markets are ignoring those signals."

Noted that portfolio protection is cheap but few are buying it.  "Does everyone think they can get out on the top?"

Jim Chanos (Kynikos Associates)

He says that "what's worked will continue to work" and monetary will stay easy and investors will live with the valuations.

Chanos says it's easier to find short ideas in this environment, but those ideas "don't work" due to the underlying upward trend.  He says the market was far more correlated last year than it has been this year.

He's short Continential Resources (CLR).  "People have been looking at the industry with rose colored glasses.  This is a problem with the North American shale business.  If we don't get a pickup in the company's fortunes in the back half of the year it's going to struggle."

Jeff Smith (Starboard Value)

Pitched Perrigo (PRGO), generic drug maker.  Says a lot of these products are sold on Amazon now and the company can expand sales of its over-the-counter medicines via that channel.  Shares have been undervalued from pricing pressures.

Also mentioned Altaba (AABA) as a top idea.  This is the former Yahoo stub that is left after selling the core Yahoo business.  What's left is a stake in Alibaba (BABA) and Yahoo Japan, etc.  It's basically a holding company.

Mick McGuire (Marcato Capital)

The activist investor has taken a new stake in Terex (TEX), the company that makes construction equipment.  They started buying last year and roughly own around 1.1 million shares per a recent SEC filing as they own 6% of the company

McGuire feels the company should see a revenue boost after a strategic re-positioning.  It's in the middle of an operating turnaround and is reducing SG&A, so there's operational profit upside.  The company also switched its sourcing program which could potentially save them around $500 million annually.  Thinks shares could triple, and has already doubled since he invested in 2016.

Chamath Palihapitiya (Social Capital)

The venture capitalist who now also runs public investments, said that he's massively long cryptocurrency bitcoin.  He calls the blockchain technology disruptive.

He argued that tech investors need to look at a company's ability to innvoate: "There's just this massive trade right now between the disruptors and the disrupted."  He says there's a lot of opportunity to be long disruptors and short the disrupted.

Jamie Dimon (JPMorgan Chase)

He called bitcoin worse than Tulip Bulbs and thinks it will eventually blow up.  Said he'd fire any of his traders trading bitcoin for being stupid.  Says it could go up to $100,000 before it blows up, who knows.  His daughter bought it, it went up, now she thinks she's a genius, he said.  Thinks it could be vulnerable to government intervention.

Thinks government policies are stifling growth.  If things changed, we'd see 3% growth rather than sub 2% which we've seen annualized now.  Singled out small businesses as most impacted.

Argued banks in the US are very sound at the moment.  Says the successor to JPMorgan is inside JPMorgan.

Mary Erdoes (JPMorgan Asset Management)

When asked about US stocks or bonds, she said none of the above.  Sees enormous opportunities in Europe, Japan, and emerging markets.  Thinks that some investors are worried about emerging markets due to the US dollar as an 'anchor' currency.

Steve Mnuchin (Treasury Secretary)

He says that tax reform is too important not to be passed and that it can occur this year and might even be retroactive back to the beginning of 2017.  Said the President's number one concern is North Korea and security.  Said hedge funds wouldn't have the carried interest provision under Trumps tax proposal.

Steve Schwarzman (Blackstone Group)

He's optimistic on tax reform, saying the 'worst' we'd do is a tax cut somewhere around 25-28%.

He thinks the biggest risk to markets are geopolitical, in particular North Korea.  He said "i would not be buying office buildings in Seoul" though didn't comment further on how this would affect investment decisions.

Schwarzman also argued that he relationship between China and North Korea is not friendly as it is perceived to be.  "The Chinese do not want a nuclearized Korean peninsula, and they're very serious about that.  They also don't want to have a shooting war occur and have 20 million refugees from North Korea go into China.  So it's complicated for them as to what they do."

Barry Sternlicht (Starwood Capital)

"It feels like the ocean is full of money, but it could evaporate."  Says he's most worried about potential problems from North Korea or Syria.

Tuesday, September 12, 2017

Paulson & Co Reduces Enzymotec Stake

John Paulson's hedge fund firm Paulson & Co has filed an amended 13G with the SEC regarding its stake in Enzymotec (ENZY).  Per the filing, Paulson now owns 9.17% of the company with over 2.10 million shares.

This is a decrease of around 2.1 million shares in their position size.  They previously owned 4.2 million shares at the end of the second quarter.  The new filing was made due to portfolio activity on August 23rd.

For more on this hedge fund, we've posted other recent activity from Paulson & Co here.

Per Google Finance, Enzymotec is "a nutritional ingredients and medical foods company. The Company's technologies, research expertise and clinical validation process enables it to develop solutions across a range of products. The Company operates in two segments: Nutrition segment and VAYA Pharma segment. Both of the Company's segments offer a range of products that leverage its lipid-related offerings. Its product suite addresses the entire human life-cycle, from infancy to old age, and comprises ingredients in products ranging from infant formula to nutritional supplements, as well as branded medical foods, sold only under a doctor's supervision. It markets its product portfolio to established global consumer companies and physicians and target large and growing consumer health and wellness markets. The Company's clinically-validated products include bio-functional lipid-based compounds designed to address dietary needs, medical disorders and common diseases."