Friday, June 24, 2011

Stephen Mandel's Lone Pine Capital Buys More iSoftStone (ISS)

Stephen Mandel's Lone Pine Capital has been scooping up shares of certain companies in the recent market turmoil.

Per a 13G just filed with the SEC, the hedge fund has disclosed a 7.3% ownership stake in iSoftStone Holdings due to trading on June 13th. They now own 3,816,216 American depositary shares (ticker ISS on the NYSE). This represents 38,162,160 ordinary shares.

Lone Pine's recent purchases mean they've increased their position size in ISS by 50% since the end of the first quarter when they owned 2,542,436 shares. In other recent activity from the hedge fund, Lone Pine bought more WABCO Holdings (WBC) as well.

Per Google Finance, iSoftStone is "an information technology (IT) services provider. They are focused on serving clients in four industry verticals: technology; communications; banking, financial services and insurance (BFSI), and energy, transportation and public sector."

To see the rest of Lone Pine's portfolio, head over to our Hedge Fund Wisdom newsletter and save 33% instantly before prices go up.

Leon Cooperman's Omega Advisors Starts Arbor Realty Trust (ABR) Position

Leon Cooperman's hedge fund firm Omega Advisors recently filed a 13G with the SEC regarding Arbor Realty Trust (ABR). Per the filing, trading on June 13th means that Omega Advisors now has a 5.2% ownership stake in ABR with 1,311,300 shares.

This is a brand new equity position for the firm as they did not show a stake at the end of the first quarter. For more from this manager, yesterday we posted up Cooperman's thoughts on equities at a recent hedge fund conference.

Per Google Finance, Arbor Realty Trust is "a specialized real estate finance company. The Company invests in a diversified portfolio of structured finance assets in the multi-family and commercial real estate markets. It invests primarily in real estate-related bridge and mezzanine loans, including junior participating interests in first mortgages, preferred and direct equity, and in limited cases, discounted mortgage notes and other real estate-related assets (collectively, structured finance investments)."

If you want to hear investment ideas directly from this hedge fund legend, he'll be presenting at the upcoming Value Investing Congress and our readers receive a discount here.

Jeffrey Gendell's Tontine Capital Trims Innospec (IOSP) Stake

Jeffrey Gendell's hedge fund firm Tontine Capital recently filed a 13G with the SEC regarding shares of Innospec (IOSP). Due to trading on June 13th, Gendell's firm has disclosed a 10.9% ownership stake in the company with 2,578,651 shares.

This is a slight decrease in their position size as they've trimmed their stake by 14% since March 31st when they owned 3,008,651 shares.

It's been a long time since we've covered this hedge fund firm. Gendell takes large positions in companies he feels are poised to benefit from selective themes. He will also take an activist role if needed.

Tontine's Comeback?

Tontine returned over 100% in 2003 but then came back down to earth. In 2008, their Partners fund returned -91.5% as they were stuck holding concentrated positions in illiquid shares during the financial crisis as forced selling accelerated.

As such, two of their funds closed down and Tontine landed on the top hedge fund manager losers of 2008.

At the time, it seemed ironic that 'Tontine' was named after an older annuity created by Lorenzo de Tonti where investors desire to be 'the last one standing.' In this arrangement, investors pool their money and as they die off the remaining investors split the deceased's stake. The last investor standing then inherits the riches.

By naming his firm as such, Gendell obviously desires to be the last man standing. He almost went by the wayside in 2008 but quietly over the past few years has re-tooled and re-built his hedge fund firm.

Per Google Finance, Innospec "develops, manufactures, blends and markets fuel additives, personal care and fragrance products and other specialty chemicals."

Thursday, June 23, 2011

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Notes From Leaders In Investing Summit: Leon Cooperman, Larry Robbins, Bill Ackman, Howard Marks & More

The CIO/CEO Leaders in Investing Summit took place on Tuesday at The Metropolitan Club of New York and featured presentations from numerous high-profile hedge fund managers.

The summit is a peer-only event only open to those investing third party capital. We're pleased to present notes from the event concerning specific investment ideas and/or commentary on the economy:

Leon Cooperman (Omega Advisors): The legendary hedge fund manager's talk centered on equities as the best house in the financial asset neighborhood. He argued that you need to believe four issues in order to have a positive view on today's market:

1. The U.S. is not another Japan and will not suffer a lost decade.
2. The European Central Bank (ECB) will act to stabilize Europe.
3. President Obama will move to the center.
4. The Middle East's turmoil leads to democracy and oil stays below $135.

Cooperman continued to voice his concern over employment. He also pointed out that the yield curve is quite steep and that the Federal Reserve is trying to inflate the country out of debt. Cooperman says inflation is not bad for stocks (see the best investments during inflation).

He argues that stocks are cheap trading at 13.6x relative to bonds and history. The Omega Advisors founder also thinks that bonds are 'screaming' to be shorted. Other hedge fund managers have also advocated shorting bonds. Don't forget that you can also hear Cooperman's latest investment ideas at the Value Investing Congress in October (click here for a discount).

Larry Robbins (Glenview Capital): Formerly of Cooperman's Omega Advisors, Robbins founded Glenview Capital. His presentation yet again focused on Life Technologies (LIFE). The company trades at a 11x P/E and is likely to grow EPS 20% over the next few years as they were able to grow EPS throughout the slowdown and 95% of their business grows with research spending.

Robbins highlighted free cashflow is 91% of EPS and that the company will have 80% market share versus competitor Illumina (ILMN). One could postulate that he's short ILMN as a hedge but when asked about it he said that he's "only here to discuss my longs."

And speaking of longs, he said some of his top holdings are Expedia (EXPE), Flextronics (FLEX), Xerox (XRX), and BMC Software (BMC) in technology. We've detailed the in-depth investment thesis on EXPE in the latest issue of our Hedge Fund Wisdom newsletter.

In general, Glenview looks for good businesses, low valuations, excess capital, a business that can succeed regardless of economic environment, and pricing power. Currently, Robbins thinks the economy will grow slowly and with heightened volatility due to excess government intervention.

Tom Russo (Gardner Russo & Gardner): The long-only manager is still bullish on China and pitched Nestle (NSRGY) at the event. His idea is simply to buy prominent international players and hold through the ups and downs. In the past, he's talked about how Nestle can invest large amounts of money in emerging markets and see high rates of return.

He is also still holding SAB Miller (LON: SAB) despite declining EBITDA margins as the company is now making acquisitions to make up for the lack of growth. Russo did not seem to like the Foster bid.

Howard Marks (Oaktree Capital): His presentation focused on the keys to success in a low return world. Marks focused on three key questions to ask yourself as an investor today:

1. Should we prepare for prosperity? He argued no because the economic recovery is faltering.

2. Should we worry about losing money or missing opportunity? For now, he says to be mindful of losing money.

3. What holds the key? Capital and nerve? Or discernment, discipline, risk control and selectivity? Marks argues the latter right now, saying that stocks are slightly cheap, but not by much.

Marks says that your choices today are as follows: invest for the long-term, go to cash, take more risk (chase yield), or find niches. Take your pick. Marks also brought up a good point that just because stocks are flat over a ten-year period doesn't mean they are a buy because the P/E was 30x ten years ago.

Oaktree recently filed for an initial public offering and Marks' recently released his new book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor which has received praise from legendary investors Warren Buffett and Seth Klarman.

Paul Singer (Elliott Associates): This hedgie's talk focused on the shape of the next crisis. He mentioned that all major banks are quite opaque and no one can truly analyze them, meaning the next crash could be even faster because the leverage is still there. He doesn't seem to be a fan of Bernanke.

Singer points out that the lesson was "sell first, move assets first, ask questions later." Those that took more time to do so got stuck and that is dangerous. He also believes that Dodd-Frank has made the system more brittle and thinks there should be NO financial institution that is too big to fail.

Lastly, he also mentioned that monetary policy has caused commodity inflation (Howard Marks also thinks this is the case).

Bill Ackman (Pershing Square Capital):
Speaking on activist investing, Ackman said that you have to work *with* management. He cited his investment in J.C. Penney (JCP) as an example as the company has a new CEO who redesigned Target (TGT) then most recently headed Apple's (AAPL) wildly successful retail operation. He also says that the company has a big advantage by owning its own real estate and not paying rent. We've covered Ackman's JCP thesis here in-depth for more.

Concerning his recent investment in Family Dollar (FDO), Ackman said that Nelson Peltz's Trian Fund is driving the effort. The company has a bid on the table and is a prime leveraged buyout candidate. The vote is in January and management has to fix the company or sell it. We've also posted Ackman's presentation on FDO.

Ackman also talked about lessons he learned from his mistakes. He said that liquidity is very valuable and lack of it is a big opportunity cost. Also, he pointed out that as you get older, you further understand the opportunity cost of time. He likes to measure whether the potential return justifies the time and risk.

Citing his past failed investment in Borders (BGPIQ), Ackman said he underestimated the risk of technological change. He would rather invest in a good business than just good management. He said the limitation of his approach is that although the stocks he invests in are liquid, his concentrated stakes are not (Ackman also mentioned 27% of his fund was redeemed during the crisis).

Ron Gutfleish (Elm Ridge Capital): Gutfleish likes the defense sector and in particular, Lockheed Martin (LMT). He argues the company doesn't make bad acquisitions, pays a good dividend and does smart buybacks. While he admits to being "usually too early," the hedgie thinks that these stocks are very cheap no matter what you think about the defense sector.

The bear case there is very obvious, he notes, pointing to a budget under pressure. However, he argues that these companies generate huge cash flow during down cycles and deploy it in shareholder friendly ways.

Joel Greenblatt (Gotham Capital): Greenblatt's presentation focused on the 'big secret for value investors.' He was, of course, referring to his new value-weighted indexing method which is detailed in his new book, The Big Secret for the Small Investor: A New Route to Long-Term Investment Success.

He argues that indexes have the flaw of market cap weighting. Evenly weighted, the SPX outperforms by 3% per year over the last 20 years. A value weighted index of 800 stocks beats the SPX by 7% a year.

Right now, Greenblatt says his statistics point to stocks being at about average valuations. Some of the stocks on his list right now include: Gamestop (GME), Wellpoint (WLP), and Intel (INTC). He says that these companies are trading at bargain prices either due to uncertainty or because they are troubled.

That sums up notes from the summit. Keep in mind that many of these hedge fund managers will be presenting investment ideas at the upcoming Value Investing Congress in October and Market Folly readers can receive a discount to the event by clicking here.

Grandmaster Capital's Patrick Wolff Says China Is Debt-Fueled Investment Bubble

Patrick Wolff launched Grandmaster Capital this January and was recently named one of Institutional Investor's 'Hedge Fund Rising Stars.' Seeded with $50 million by Clarium Capital's Peter Thiel, Grandmaster pursues a long/short equity strategy with macro overlays.

Wolff previously worked at Clarium Capital and named his fund Grandmaster because that's exactly what he is (a US International Grandmaster and two-time US national champion in chess). He graduated from Harvard and recently sat down with CNBC where he revealed his take on the markets.

Wolff Wary of China

Wolff says that the US has its fair share of problems, some of which are priced in while others are not. On the other side of the world, he cautions that trouble awaits, arguing that China will hit the wall hard sometime in this decade.

Wolff says that, it's a "debt-fueled investment bubble and when it breaks, it's going to be the major macro event of the decade."

Other prominent hedge fund managers have voiced warnings about China. At the recent Ira Sohn Conference, Corriente Advisors' Mark Hart said to short China, arguing that inflation will end the country's credit growth.

Conversely, hedge fund Maverick Capital is focused on China's importance and Warren Buffett has said China will be a big driver of growth for the next 10-20 years.

Arguments aside, it's clear that China will be a main talking point for investors in the coming years.

A Stockpicker's Market

In terms of specific sectors he sees as attractive, the Grandmaster Capital founder points to the consumer staples and defensive names as places to be.

Additionally, Wolff sees opportunity in the property and casualty insurance names. He says they're trading at all-time lows in terms of valuation and have solid balance sheets.

Wolff thinks we could see a hard pricing market after all the natural disasters in the past year and he's not alone in his stance there. At the recent Ira Sohn Conference, famous fund manager Steve Eisman said to buy P&C insurers even if there's another big disaster.

Embedded below is the video of Patrick Wolff's interview with CNBC:

Wednesday, June 22, 2011

T2 Partners Goes Activist on Iridium Communications (IRDM)

Whitney Tilson and Glenn Tongue's hedge fund firm T2 Partners has filed an activist 13D with the SEC regarding shares of Iridium Communications (IRDM).

Per trading on June 20th, 2011, T2 has disclosed a 9.3% ownership stake in IRDM with 6,529,338 shares. In actuality, they own 862,576 shares of common stock and 5,666,762 warrants (IRDMW) which are exercisable into shares of common.

They've increased their position size by about 16%. At the end of the first quarter (March 31st), they owned 1,292,460 shares of common stock as well as two sets of warrants (collectively representing 4,340,678 shares). Since then, they've sold some common stock and added to their warrant positions.

Seeking Talks With Management

In the "purpose of transaction" section of the SEC filing, T2 outlines that they believe shares are an attractive investment and they intend to pursue conversations with management about the company's capital structure.

Additionally, the filing outlines T2's "current intentions to purchase up to 100% of the outstanding shares of certain warrants (trading as IRDMW)."

T2's Thesis on Iridium

We've posted up before how the hedge fund thinks IRDM is a triple in the next 3-5 years but they have to stomach the near-term volatility in the mean time. They believe the stock is largely undervalued and like the fact that the large overhang of a big seller (Syndicated Communications, a private equity fund) has now disappeared.

The hedge fund sees IRDM as attractive due to its positioning as one of only two major players in the global satellite communications industry. You can view T2's presentation on Iridium here.

Per Google Finance, Iridium is "a provider of mobile voice and data communications services via satellite. The Company offers voice and data communications services to businesses, the United States and foreign governments, non-governmental organizations and consumers via its constellation of 66 in-orbit satellites, in-orbit spares and related ground infrastructure, including a primary commercial gateway."

For analysis of their other investments, check out T2's presentation on JOE & HHC here.

Second Curve Capital Loads Up on Citizens Republic Bancorp (CRBC)

Thomas Brown's hedge fund firm Second Curve Capital has filed a 13G with the SEC regarding shares of Citizens Republic Bancorp (CRBC). Per trading on June 17th, 2011, Second Curve has disclosed a 5.34% ownership stake in CRBC with 21,236,157 shares.

They've increased their position size by a whopping 312% since the end of the first quarter when they owned only 5,150,000 shares. Since the end of March, shares are down almost 20% and Second Curve has stepped in to buy.

In other activity from the hedge fund, we last covered their sale of CompuCredit shares (CCRT). Before founding Second Curve, Tom Brown headed the financial services group at Julian Robertson's Tiger Management. As such, it should come as no surprise that his fund largely focuses on financials.

Per Google Finance, Citizens Republic Bancorp is "a diversified banking and financial services company that is a bank holding company. Citizens provides a range of banking and financial services to individuals and businesses through its subsidiaries Citizens Bank and F&M Bank, Iowa (F&M)."

For more investment ideas, check out our notes from top hedge fund presentations.

What We're Reading ~ 6/22/11

Howard Marks & Oaktree's IPO: should you buy? [Barbarian Capital]

Bill Ackman considers IPO in quest for permanent capital [AR + Alpha]

SEC to approve hedge fund registration rule today [FINalternatives]

Hedge funds invest in energy newcomer Vallares [Telegraph]

Is it time to talk a Research In Motion (RIMM) takeover? [WSJ]

7 life lessons from the very wealthy [Washington Post]

Bridgewater's Pure Alpha up 11% this year [Institutional Investor]

Profile on Oaktree's Howard Marks [Bloomberg]

Paulson & Co dumps entire Sino-Forest position [Globe & Mail]

Finding investment treasures in international markets [Vitaliy Katsenelson]

Would you buy this company? [Frank Voisin]

Stocks cheapest in 26 years [Bloomberg]

Technical Analysis: The bear is back & this time it will be much worse [Smart Money Tracker]

Tuesday, June 21, 2011

Get Investment Ideas From Bill Ackman, Jim Chanos & Leon Cooperman at the Value Investing Congress

The upcoming Value Investing Congress in New York City has an all-star line-up as usual. Jim Chanos of hedge fund Kynikos Associates was just announced as the latest speaker for the event on October 17th & 18th, 2011. The manager is famous for his Enron short and you can hear his latest short ideas at the event.

Discount: Market Folly readers can save 47% off admission by clicking here and using discount code: N11MF2.

Here's the list of managers presenting:

- Bill Ackman (Pershing Square Capital)
- Leon Cooperman (Omega Advisors)
- Jim Chanos (Kynikos Associates)
- Joel Greenblatt (Gotham Capital)
- Guy Gottfried (Rational Investment Group)
- Michael Kao (Akanthos Capital)
- Whitney Tilson & Glenn Tongue (T2 Partners)

This is *the* go-to event for the latest investment ideas from top hedge fund managers.

The discount for our readers expires in one week so take advantage ASAP. Click here to receive the discount.

Lone Pine Capital Adds to WABCO Holdings (WBC)

Stephen Mandel's prominent hedge fund Lone Pine Capital has disclosed a 6.0% ownership stake in WABCO Holdings (WBC) with 4,058,927 shares per a 13G just filed with the SEC.

This marks almost a 213% increase in their position size. At the end of the first quarter, they only owned 1,297,495 shares. To see the rest of Lone Pine's investments, head to a free sample of our Hedge Fund Wisdom newsletter.

This year, Mandel graced the esteemed Forbes billionaire list again. Prior to founding Lone Pine, Mandel worked at Julian Robertson's Tiger Management as a managing director and consumer analyst. The hedge fund manager named his fund after a historical 'lone pine' tree at Dartmouth College, his alma mater.

WABCO Holdings provides mechanical and electronic products for commercial manufacturers of trucks, trailers, buses and more. For more from this fund, we've also covered some of Lone Pine's other trades this year.

Carlson Capital Goes Activist on Ruby Tuesday (RT)

Clint Carlson's hedge fund firm Carlson Capital filed a 13D with the SEC signifying their activist investment in Ruby Tuesday (RT). Due to trading on June 7th, 2011, Carlson has disclosed a 5% ownership stake in RT with 3,250,000 shares.

This marks over a 10,800% increase in their position size (they only owned 29,800 shares at the end of the first quarter). Carlson's stake in total was purchased with $33.6 million.

Activist Investment

The 13D filing was made in conjunction with Becker Drapkin Management and for activist purposes the two have filed as a "group." Collectively, the group owns 4,143,900 shares of Ruby Tuesday (including 200,000 shares of underlying call options exercisable until October 22nd, 2011). In total, this represents 6.4% of outstanding shares.

While they originally purchased shares because they believed they were undervalued, the "purpose of transaction" section of the regulatory filing outlines that Becker Drapkin is seeking to nominate directors at the company's annual meeting.

Connection With Becker Drapkin Again

The interesting thing here is that this is not the first time that Carlson Capital and Becker Drapkin have filed together. In the past, we covered when the two managers got involved with Hot Topic (HOTT).

That situation seemed to work out well, as shares of HOTT are up over 31% since then and Carlson still held its entire position as of the end of the first quarter. We'll have to see if these two firms can work their magic again.

Per Google Finance, Ruby Tuesday "including its wholly owned subsidiaries (RTI) owns and operates Ruby Tuesday casual dining restaurants."