Thursday, May 29, 2008

Maverick Capital's 13F (Lee Ainslie)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here )

Lee Ainslie started Maverick Capital back in 1993 with $38 million. Nowadays, the fund is worth $10 billion, so you can already see the track record he's established. Ainslie, like many of the other fund managers I've profiled, has a background rooted in learning from legendary great Julian Robertson at Tiger Management. So, due to the fact that these proteges learned from the best and have had great success running their own funds, I continually try to find a reason NOT to follow these funds. And, needless to say I'm never successful. Time to learn from the greats! Some of my contacts over at Maverick have explained to me that their strategy is straight up stock picking, both long and short. They made it clear though, that they do not employ pairs trades. Although, some of their long/short setups might be in the same sector. They try to hedge their positions like a true hedge fund by picking out the shining stars in certain sectors, as well as identifying the pieces of garbage. Now, of course, this presents us with a problem in that the 13F filings only show long positions (unless they're holding puts on a name, we can see those). So, a good amount of Maverick's portfolio (the entire short side) is unbeknownst to us, because they have reported zero put positions. But, let's look on the bright side in that we can see all their long positions. Maverick uses a value approach (obviously learned from Julian) and one of their most popular metrics is finding companies and comparing their enterprise value to sustainable free cash flow. So, now that we've got a little background on Maverick, let's see what they were up to. Rumor has it that they had a poor start to the year, and they were definitely out switching things up in mass in their portfolio.

New Positions: (in no particular order)
American Capital Strategies (ACAS) 581,590 shares
Bankrate (RATE) 100,100 shares
BonTon Stores (BONT) 57,000 shares
BPW Acquisitions (BPW) 2,000,000 shares
Citrix Systems (CTXS) 4,007,280 shares
Crocs (CROX) 515,389 shares
Discovery Holdings (DISCA) 6,063,297 shares
Dish Network (DISH) 5,977,630 shares
Infinera (INFN) 2,524,117 shares
JPMorgan Chase (JPM) 4,745,330 shares
Liberty Media Corp (LMDIA) 5,726,736 shares
Loews (LTR) 2,297,358 shares
Nordstrom (JWN) 4,386,874 shares
Sears (SHLD) 848,724 shares
Starbucks (SBUX) 12,512,559 shares
Wyeth (WYE) 4,282,850 shares

Added to:
Advanced Micro Devices (AMD) increased by 12% (3,956,220 more shares)
Amylin (AMLN) increased by 28% (544,550 more shares)
Apple (AAPL) increased by 3.6% (80,965 more shares)
Autozone (AZO) increased by 99.8% (1,005,200 more shares)
Avon Products (AVP) increased by 82% (2,863,320 more shares)
Bank NY Mellon (BK) increased by 24% (1,174,155 more shares)
Baxter (BAX) increased by 38.5% (930,840 more shares)
Burlington Northern (BNI) increased by 151% (1,007,490 more shares)
Cardinal Health (CAH) increased by 12% (350,230 more shares)
China Nepstar Chain Drugstores (NPD) increased by 68.5% (960,605 more shares)
Cognizant (CTSH) increased by 3.6% (181,168 more shares)
Covidien (COV) increased by 57% (1,483,210 more shares)
Cypress Bioscience (CYPB) increased by 123% (1,458,064 more shares)
Direct TV (DTV) increased by 25% (1,438,140 more shares)
Fidelity National Info (FIS) increased by 41% (1,286,091 more shares)
Google (GOOG) increased by 49% (98,722 more shares)
Hanes Brands (HBI) increased by 37% (896,563 more shares)
Home Inns & Hotel Mgmt (HMIN) increased by 28% (633,753 more shares)
Leap Wireless (LEAP) increased by 19.5% (217,011 more shares)
Lumber Liquidators (LL) increased by 7% (147,720 more shares)
Marsh & McLennan (MMC) increased by 13.6% (888,850 more shares)
MetroPCS (PCS) increased by 32% (1,032,857 more shares)
Mylan (MYL) increased by 52% (3,463,006 more shares)
Nucor (NUE) increased by 19% (307,337 more shares)
Research in Motion (RIMM) increased by 179% (2,174,226 more shares)
Resmed (RMD) increased by 11% (186,168 more shares)
Salesforce (CRM) increased by 63% (818,010 more shares)
Sandisk (SNDK) increased by 7% (399,180 more shares)
Textron (TXT) increased by 31% (988,240 more shares)
UnderArmour (UA) increased by 81% (1,622,662 more shares)
United Health (UNH) increased by 31% (832,673 more shares)
VMWare (VMW) increased by 5% (60,000 more shares)
Zimmer Holdings (ZMH) increased by 36% (623,610 more shares)

Reduced Positions:
America Movil (AMX) reduced by 34.5% (1,907,040 less shares)
Berkshire Hathaway A (BRK.A) reduced by 43.5% (635 less shares)
Berkshire Hathaway B (BRK.B) reduced by 22.8% (3,687 less shares)
Corcept (CORT) reduced by 8.5% (128,480 less shares)
Cumulus Media (CMLS) reduced by 21% (526,311 less shares)
Gamestop (GME) reduced by 14.6% (676,378 less shares)
Genentech (DNA) reduced by 9% (150,290 less shares)
Gmarket (GMKT) reduced by 56% (308,037 less shares)
Harmonic (HLIT) reduced by 10% (574,361 less shares)
Lexmark (LXK) reduced by 49% (2,161,513 less shares)
Marvell Tech (MRVL) reduced by 3% (551,916 less shares)
Monsanto (MON) reduced by 11% (190,570 less shares)
Office Max (OMX) reduced by 22% (1,464,249 less shares)
Potash (POT) reduced by 11% (123,790 less shares)
Qualcomm (QCOM) reduced by 37% (3,851,237 less shares)
Raytheon (RTN) reduced by 19% (861,290 less shares)
Suntrust (STI) reduced by 54% (1,194,028 less shares)
ThermoFisher Scientific (TMO) reduced by 33% (1,782,100 less shares)

Removed Positions:
Positions Maverick sold out of completely
Altria (MO)
Atheros Comm (ATHR)
Biogen Idec (BIIB)
Burger King (BKC)
Crown Castle (CCI)
CVS Caremark (CVS)
Digital River (DRIV)
Echostar (SATS)
Five Star Quality Care (FVE)
Guess (GES)
Healthnet (HNT)
Macys (M)
Men's Warehouse (MW)
Merck (MRK)
Omnicare (OCR)
Wellpoint (WLP)
Wyndham (WYN)
Yahoo (YHOO)

Positions with no change:
Bluefly (BFLY)
Cnet (CNET)
First Advantage Corp (FADV)
First Marblehead (FMD)
Gilead (GILD)
Move Inc (MOVE)
Newstar Financial (NEWS)
Palm (PALM)
Trubion Pharma (TRBN)
Ultra Clean Holdings (UCTT)
Vivus (VVUS)
Western Union (WU)

Top 10 Holdings by % of Portfolio:
1. RIMM (Top holding)
4. AVP
5. BK
7. GME
8. RTN
9. AMX
10. TXT


Breakdown: Alright, so right out of the gate the first thing I noticed was Maverick's heavy tech weighting, much like fellow Tiger Cub funds Lone Pine and Blue Ridge. Maverick's top 3 holdings are all tech in RIMM AAPL and QCOM. And, Maverick even reduced their QCOM position by almost 40% and its still the #3 holding. I'm sure given the big run tech has had lately (especially AAPL), that Maverick will show some profit taking next quarter in the next round of 13Fs. They just clearly loaded up on tech on the big dips, and they've profited quite handsomely from that play it seems. Ainslie added to Avon Products (AVP) by 82% and brought it up to the #4 fund holding, which is a strong move. Ainslie also added heavily to Autozone, increasing it by almost 100%, and bringing it to a notable 11th largest fund holding. Also, he added Bank New York Mellon by 24% and it sits at the fund's 5th largest holding. Maverick clearly wants to play the financial space through BK and then also JPM, which they also added as a brand new holding this go round. And, they added in mass too, with a whopping 4.7 million shares. Take a closer look at those two if you want financials exposure. Ainslie also started a pretty decent sized position in Citrix, who specialize in IT and the such. I would say they were trying to play the VMWare trade through the backdoor, but they already have VMW in the fund as well. Another new addition to the portfolio this go round was Wyeth, which they added a strong 4.2 million shares of. Also, it seems like Ainslie added SBUX as well, buying on the dip when Schulz came back. We'll see if they still hold those shares in the next quarter.

In terms of further adding to positions they already owned, Maverick really loaded up on BNI, a whopping 151%. And, keep in mind, that stock has already made a monster move, so they weren't exactly getting those shares on the cheap. They clearly believe the move in the rails has more juice. They also added in mass to Cypres Bioscience by 123%, showing conviction in that buy as well. One play that they continue to quietly amass is satellite plays. DTV they increased by 25% and they've been building a position over time. They also started a brand new position in Dish Network, so they've got all their bases covered. I'll definitely be checking into that theme further as Maverick seems to firmly believe in it, despite a recession. They also added GOOG to their tech basket by 41%, but its still *not* a top 10 holding in the fund. Ainslie clearly prefers hardware in tech. They also continue to add to Mylan quarter after quarter (increased 52% this quarter), so that's one I'm keeping my eye on as well. One move I'm not so sure of is them adding to UA by 81%. I think this stock has real issues as they've lost their "mojo" after first storming onto the scene. We'll see how that plays out and see if they add even more shares in the quarters to come. Half the point in tracking these 13f's is to see where these funds are accumulating shares on a quarterly basis, so we can play catch-up with them and load up on positions ourselves that these funds strongly believe in. Some stocks they buy and sell and they are in and out. Others though, you can see them slowly adding each quarter, building core positions. Those are the ones you want to look for. Also, keep an eye out for sector trends (such as satellite tv in Maverick's case). They are clearly buying up all satellite players and must believe strongly in that space.

Turning to the reduced positions, I noticed that they've reduced their stakes in both BRK.A and BRK.B. Clearly they aren't seeing as much value in Buffett anymore. Or, maybe they were just freeing up cash. As, after all, if the rumors of Maverick's poor start to the year were true, then they needed to free up some cash to re-tool their portfolio. I mentioned earlier that they reduced their QCOM position by 37%, and yet it is still the 3rd largest fund holding. That amazed me; they've really bet big on this name. I attribute this sell to some profit taking and some freeing up cash to re-work the portfolio. After all, its still a massive holding and they've sold off more than a 3rd of the position. Raytheon (RTN) was also reduced by 19% and yet it is the fund's 8th largest holding. So, not a whole lot to worry about there either.

Maverick sold completely out of some of their bigger and longer term holdings in that of CVS Caremark and Burger King. They also sold out of Echostar (SATS) and it seems they prefer DTV and DISH in the satellite space. Actually, it looks like they swapped completely out of SATS and into DISH. Another semi-big holding they sold out of was Guess. Then some smaller holdings of fellow retailers Macys and Men's Warehouse were sold off as well. It seems that Maverick must have taken a real beating with all of these retailers and that probably played a large part in their rumored weak start to 2008. They've clearly admitted they were wrong on those and sold them off completely in search of better sectors. One removal I was confused about was Crown Castle, as their investment in the wireless tower industry seemed to be a smart one. But, now that they've sold out, its time to revisit that name and make sure nothing is fundamentally wrong with it. Maybe Maverick needed the cash after their bad beginning of the year, maybe they were taking profits in the name, who knows. But, I strongly believe that the wireless tower play was a smart one and I'm going to look into it deeper, as the future is obviously in wireless technology.

Not a whole lot to look at in terms of positions with no change. They kept their GILD position unchanged as the fund's 6th largest holding. They held their CNET as well, and I'm sure they've actually sold it off now that the stock has popped immensely on its takeover news. Like fellow Tiger Cub manager John Griffin at Blue Ridge, Ainslie and Maverick have a position in First Marblehead. Maverick didn't quite add in mass like Blue Ridge did... but then again maybe Blue Ridge was playing catch-up. As I've said earlier, there are usually some commonalities between the portfolios of all the ex-Tiger Management gang. They undoubtedly still keep in touch and share their good ideas and then swarm them in mass. So, identifying the names that all of the funds hold collectively could create quite a killer portfolio. I'll actually be developing a model portfolio later based on the consensus ex-Tiger Management funds (ie: a portfolio of stocks that appear in all 3 funds' portfolios: Maverick, Lone Pine, and Blue Ridge). Now that I've covered the 3 major proteges of Julian Robertson, I can sift through the data to find all the commonalities and create a mock modern day Julian Robertson-esque Tiger Management portfolio to track.

Personal Favorites out of Maverick's portfolio: AAPL QCOM GILD AMX BNI TMO POT AMLN MYL DTV RMD

Most interesting move(s): 1. Bringing Avon Products up to the #4 fund holding 2. Doubling down on Autozone and making it the #11 fund holding 3. Substituting DISH in place of SATS 4. Seemingly shifting out of most of their retail plays (including selling off their entire huge chunk of CVS) 5. Continuing to slowly build positions in RMD, DTV, and MYL

Note/ Of their positions, I'm long: AAPL QCOM GILD AMX TMO POT

Names I want to research further: CCI DTV DISH MYL RMD

Keep an eye out for continued hedge fund 13f tracking when I cover Greenlight Capital (David Einhorn), Atticus Capital (Timothy Barakett), and a few other big funds/whales.

Wednesday, May 28, 2008

Some Portfolio Updates

*Before I get to the portfolio updates, just wanted to let everyone know that the hedge fund 13f tracking series is by no means finished. I was just on vacation for the long weekend and haven't had time to finish up the research. Sorting through those 13F's and comparing them line by line is quite tedious haha. Look for posts covering Maverick Capital (Lee Ainslie), Greenlight Capital (David Einhorn), Atticus Capital (Timothy Barakett), and more in the coming days. Just need to get this portfolio update out of the way first.*

Long overdue for a Portfolio update. First, let's start with Mosaic (MOS). I've been a big fan of the fertilizers due to their global pricing power (ideal short supply and huge demand conditions). I've been scaling in and out of them ever since August 2007, taking profits and buying the dips along the way, revolving around a core position. I usually play the space through both Potash (POT) and Mosaic (MOS) because POT is best of breed, and MOS is the up and comer with better valuation. I usually enter investments in fourths so I buy 25% of my overall position in one round, then another 25% and so on. Currently, I've got 1/2 a position in POT right now but I only had 1/4th a position in MOS, that is until yesterday when my limit order at $115 hit and now i've got 1/2 a position in MOS. Now, this was a limit order set from a while ago that I lined up to coincide with the 50 day simple moving average. But, let me go over why entering MOS here would be a good idea, even with its dip below the 50 day ma. First, looking at the chart we see that of course it has touched the 50 day ma and this has been an excellent buying opportunity in the ferts whenever they pullback this far. If you look at the chart you'll see that each touch to the 50day ma has been a buying opportunity. And, notably, each touch has actually broken below the 50 day, only to sharply rebound right back above it and begin its trend higher. So, this is why the fact that it broke the 50 does not bother me: MOS seems to always do that and the buyers always come in. Secondly, look at the Full Stochastics at the very bottom of the chart. You will see that we are now in oversold territory and the stochastics have turned back up, indicating a bullish future. Look at all the other times that the stochastics have entered oversold territory (reading 20 or below). Every single time the stochastics point to oversold, MOS has rebounded for a trade at the very least, if not continuing its run higher. Lastly, looking at the RSI at the top of the chart shows us that everytime MOS sees an RSI reading of 50 or below, buyers have come in. And, yet again, buyers dipped into MOS. So, the chart really tells the story in MOS. Watch the moving averages for support, watch the full stochastics for oversold conditions (20 or below) and watch the rsi for a buying signal (50 or below). As long as MOS hits some of these conditions without massive volume, step in and pick up part of your position. If it shows heavy volume on the decline though, stay away as it probably indicates distribution and further downside.

Next up, just wanted to mention that I added Walmart (WMT) on the pullback to the 50 day moving average as well. I've been VERY patient on this one, waiting for a pullback for a nice entry. Obviously waiting for a pullback to the 50 day moving average is always a smart idea, as this level typically serves as a support level for uptrending stocks. You'll notice on the chart that smaller pullbacks have occurred along the way the past few months, but we finally got a pullback of real size and so I pulled the trigger. Notice also how the stochastics on the very bottom of the chart point to oversold. Look to other times that the stochastics crossed down around the 20 level and you will see they pointed to excellent buying opportunities in this name. This is the primary oversold indicator I use and it has served me well. Not to mention, WMT has been so strong lately that it has rarely dipped below 50 on the RSI. And, every time it has, its been a buying opportunity. We just got one, so that was yet another buy signal screaming at me. So, both the RSI and stochastics were at the lower end of their ranges and started to turn up, signaling bullish future. Combine that with the touch of the 50 day moving average and I'm more than happy to add some WMT.

Its obvious that in a recession/tough times/era of high gas prices, that consumers will hit the discount retailers more frequently. And, WMT is a one stop shop for all their needs (including gas at some Sam's club locations). So, the thesis for this play is really simple. People are living cheaper due to tough times and the only places for them to go are COST or WMT and WMT to me simply has greater exposure and offers you both the pure discount shop in its Walmart stores, as well as the bulk item membership version Sam's Club. So, I chose WMT over COST mainly for this reason, and also because just chart-wise its much healthier looking than COST. And, believe it or not, the final decision maker was just stepping into Walmarts over the past few months. They are ALWAYS packed, no joke. I even stepped inside there on a Friday night at 11:00pm to pick up some mixers before heading out and the place was absolutely packed. My jaw practically dropped. I knew it was a busy place, but even at 11pm on a friday night?! That sealed the deal for me. Target (TGT) wasn't even an option for me simply because I've been in a few Targets over the past few months as well and they are ghost towns compared to WMT. Not to mention, they aren't "cheap" in a sense like WMT and COST. TGT is a discount retailer sure, but I want the cheapest of the cheap in this kind of environment. I don't care how clean Target's stores may be, I'm focused on the pricing offered and the foot traffic. WMT ftw (for the win).

Lastly, I wanted to touch on DRYS. I "twittered" (see widget on upper right of the blog) that I sold the last of my DRYS off last week, as it had a monster run and started to see sellers coming in. However, yesterday I got right back in despite seeing heavy volume distribution in the name. Firstly, you'll notice on the chart that DRYS has had a monster run yes, but it has also had a monster pullback in the span of 1 week. Shares sat around $86 and were calling my name. Look at early February and see the recent peak of around $85 and then look at where DRYS is right now, sitting smack dab right on past resistance/now future support. So, knowing that DRYS had hit support on its pullback, I started a teaser position up in the name again because it had simply seen too much selling. The stochastics once again helped me in this decision as they had gone from overbought (around 80) to oversold (around 20) in the matter of a week's time. So, the stochastics signaled a buy, DRYS was sitting on support, and it had seen a massive sell off in only a week. I figured at the very least it was worth a trade, and I was right. DRYS popped 9% today (Wednesday 28th). But, don't get me wrong, I like DRYS as an investment here due to a few reasons. 1. They just reported great earnings a few weeks ago and the Baltic Dry Index wasn't even at all time highs. 2. Since that earnings report, the Baltic Dry Index has been screaming higher, meaning DRYS can charge higher rates on the spot market 3. DRYS operates a ton (practically all) of their rates on the spot market, so they will have an absolutely monster quarter to report next go-round. But, I must urge you to proceed with caution with this name. As you can see from the chart, its very volatile (just like the Baltic Dry Index) and you've got to keep a close eye on things to make sure you don't get shredded to bits. Keep an eye on the BDI to make sure DRYS is still cranking out high rates. Also, monitor the ships' availability, as there has been a shortage of ships lately. The heavy volume on the pullback showed signs of distribution I'm aware of that, but the sector has strong underlying fundamentals right now and saw a massive sell-off due to profit taking from the massive run-up in the first place. The strong volume today as DRYS ran right back up is positive as buyers returned with force. Look to trade this name at the very least, if not invest in it for the next quarter or so, as DRYS will really benefit from high spot rates.

Lastly, I just wanted to give a run-down of my overall portfolio. This blog details the occurrences within my main investment account, as well as my short term trading account. My investment account has anywhere from 15-20 stocks/etf's in it with a slightly longer investment time frame (anywhere from 3 months to years) and I scale in and out of positions, taking profits when I deem fit, and scaling back in on dips. My other account is for shorter term trades (1 day, 1 week, 1 month) and typically only holds 1-5 names at any given time. I set up this blog with the goal of providing complete portfolio transparency through Portfolio updates like these, and live trade updates with my Twitter widget in the upper right hand corner of this blog. That way I can outline my investment theses and get feedback from others. So, by all means feel free to bash my portfolio, make helpful suggestions, or just straight up question my decisions. Any and all comments are welcome, as I love outside input to make myself sure that I am in the right names for the right reasons.

Long Positions as of Weds May 28th in no particular order: AAPL (slowly taking profits as we near $200), QCOM, MA (been selling, waiting for a meaningful pullback to re-add), V, GS (just added), USB (writing covered calls on it & picking up the 5% dividend), RSX (Russia), ILF(Brazil/Mexico: AMX, FMX, BBD, ITU), TTEK (Water/Wind, courtesy of @jmclarty who initially brought this one to my attention), ETR, NLR (been taking profits), BIIB, GILD, ACI (wishing for a big pullback to really load up), POT, MOS (just added more on pullback), UNG, CHK, WMT (just added on the pullback), TMO, SDS (hedge: ultrashort s&p)

Short Positions: COF (covering the last of it though)

Watchlist: I've owned some of these names before, but waiting for pullbacks to get back into MEE, FLR, FWLT. Want to start a new position in MIL as well... waiting.

I've probably left out a few names but that should sum it up.