Friday, October 21, 2016

Rich Pzena Likes Banks, Hilton, Seagate

Rich Pzena of Pzena Investment Management appeared on CNBC yesterday and said the market has divided into 2 groups: those that are in sync with the 'lower for longer' philosophy and those aren't cheap stocks, and those that are out of sync like financials/energy/materials that are selling for attractive valuations.

"Any stable, low volatility cash flowing stock" is basically overpriced he feels.

He argued financials were intriguing: "If interest rates go up, you make a fortune, but if they don't you make 10% a year." These companies are paying out their earnings.  He owns Citigroup (C) and Bank of America (BAC), among others.

On the market in general, he says that, "The steady decline in the 10-year is what's caused this whole market situation. And now, maybe it's bottoming."

He thinks interest rates will rise this year and then will go gradually higher.  He thinks his stocks are positioned well to weather downturns in the market or rising rates.

"As this interest rate bubble ends, I think we'll see a re-emergence of active management.  There's lot of interesting opportunities that's not in touch with where the money has flowed."

Pzena also preached what he thinks is instrumental to success:  "Volatility is the opportunity for every real investor.  What we do for a living is exploit other people's fear of volatility to be able to buy stocks at a low price.  Volatility has nothing to do with risk.  Volatility is just stuff going up and down.  And risk is losing money."

Pzena's New Pick: Hilton (HLT)

Pzena has also bought Hilton (HLT) and says that apartment REITs sell for twice as much as lodging REITs.  Hilton is splitting into 3 companies by year-end: a fee based management co, a lodging REIT, and a timeshare business.

"The company's depressed because it's in lodging and people are fearful that we're near the end of the upcycle in lodging."

He feels that it's not a spectacular value like the banks are, but for what it is (a leading franchise) it looks good. He notes HLT has 20% share of all hotel rooms under construction.

He thinks the spin-off in the near-term leads to 20% upside.  Post-spin, he hopes the management company would get a higher multiple than the REIT.  But he thinks that may take time to play out as the cashflow evolves.

On Seagate (STX)

This is one of Pzena's larger positions.  Seagate is in the middle of correcting the overcapacity it had.   They've had strong volumes on the enterprise side and he says that's the whole story:  "It's a replacement of storage in the cloud rather than in the device."

For more from prominent investors, head to David Tepper's recent interview, as well as Keith Meister's thesis on YUM and Barry Rosenstein's thoughts on the market.

Barry Rosenstein on the Market, Active vs Passive, & More

Barry Rosenstein of hedge fund JANA Partners was interviewed on CNBC yesterday and he said stockpicking isn't dead and the push to passive investing is just a 'bubble' of a trend. He noted: "Wall Street has a great ability to overdo a good thing."

On the market: "I think the market's fairly valued; I don't think it's cheap, I don't think it's expensive; there's pockets of value.  It's hard to get excited about corporate earnings growth right now."

On hedge funds: "I think the fact that we're no longer in a one directional market is going to remind people why they want to be in hedge funds again.  I believe this is the kind of market where a fund like ours can find interesting situations and take advantage of the volatility."

On activism, Rosenstein said "as long as human beings are running public companies and as long as the current board dynamic exists, there's always going to be a need for activism.  Sometimes boards lose sight of what needs to happen."  He thinks activism has a long and bright future. 

On ConAgra: He's trimmed his position in ConAgra a bit, but commended management on turning the business around and making a lot of changes (spinoffs, cost savings, etc) and Rosenstein thinks this one has "years to go" with a collection of attractive brands that can grow at double digit earnings growth and the potential for pruning its portfolio and making attractive acquisitions.

He doesn't think they need to increase their dividend as they're already buying back stock.

JANA also reduced its stake in Walgreen's (WBA) and he thinks it's a great company.  He was on the board for a while but stepped off.  He thinks they've accomplished a 'tremendous' amount.

For more from prominent investors, head to David Tepper's recent interview, as well as Keith Meister's thesis on YUM.

Hedge Fund Links ~ 10/21/16

Ray Dalio's remarks at 40th annual central banking seminar [LinkedIn]

Steve Cohen may return to hedge fund industry when ban expires [NYTimes]

Hedge funds struggle to master their miserable new world [Bloomberg]

Hedge fund launches dwindle to 16-year low as returns lag [Bloomberg]

Year-to-date level of hedge fund redemptions highest since 2009 [FINalternatives]

Is Bill Ackman toast? [Vanity Fair]

Paulson's 2016 loss mounts [Bloomberg]

Recruiters give advice for applying for hedge fund jobs [Business Insider]

One venture capitalist is beating hedge fund managers at their own game [CNBC]

So many hedge funds, so little alpha [Bloomberg]

Two big hedge funds unwind bets against Deutsche Bank [Reuters]

Deutsche creats new $50 billion hedge fund and structured products arm [HFM]

Thursday, October 20, 2016

What We're Reading ~ 10/20/16

The dying business of picking stocks [WSJ]

Marks, Grantham, Arnott, Gundlach reveal their biggest hits and mistakes [WSJ] 

John Maynard Keynes: courage is the key to investing [WSJ]

Joel Greenblatt's investing secrets revealed [Barrons]

What does Nevada's $35 billion fund manager do all day? Nothing [WSJ]

What I learnt on the sell side [What I Learnt on Wall St]

What's something you strongly believe in that's likely wrong [Collaborative Fund]

How to stay patient for longer [Clear Eyes Investing]

Chipotle (CMG): is the brand intact? [Rational Walk]

A quick look at Liberty Ventures (LVNTA) [Peters Macgregor]

A piece on Atlassian (TEAM) [Fast Company] 

27 charts that will change how you think about the American economy [Vox]

The Jeff Bezos regret minimization framework [A Wealth of Common Sense]

Preparing for the future of artificial intelligence [The White House]

An integrated perspective on the future of mobility [McKinsey]

The best performing CEOs in the world [Harvard Business Review]

Liquid assets: how the business of bottled water went mad [The Guardian]

Sam Zell sees limited investment opportunities in the future [NREI]

Deutsche Bank: a Greek tragedy at a German institution? [Aswath Damodaran]

Imagining a cashless world [New Yorker]

Wednesday, October 19, 2016

Sohn London 2016 Investment Conference Speakers Revealed

We've got an exclusive preview of the speakers list for the upcoming Sohn London 2016 Investment Conference.  The Sohn Conference Foundation, in partnership with CNBC, has prepared the 5th annual conference, bringing together influential investors to hear their strongest ideas for navigating the unprecedented and complex challenges Europe now faces.

With the backing of the UK investment community, they've raised more than £55 million to date for the fight against pediatric cancer.  This year looks to continue to build on that momentum.  

All proceeds from this year's conference will support The Royal Marsden Cancer Charity, providing crucial funding to support medical research and cancer treatment for children across the UK.

You can learn more and register for the event at

Sohn London 2016 Speakers List

- Christopher Hohn, TCI Fund Management Limited
- Robert Bishop, Impala Asset Management
- Adrian Croxson, Och-Ziff Management Europe Limited
- Ashish Goyal, Citadel Investment Group
- Masroor Siddiqui, Naya Capital Management UK Limited
- Elif Aktug, Agora Fund Manager, Pictet Asset Management
- Iván Martin Aranguez, Magallanes Value Investors
- Bo Börtemark, Carve Capital AB
- Dureka Carrasquillo, Canadian Pension Plan Investment Board
- Marc Chatin, Parus Fund
- Anne-Sophie D'Andlau, CIAM
- David Jones, You & Mr. Jones
- Erik Karlsson, Bodenholm Capital AB
- Mans Larsson, Makuria Investment Management
- Michel Massoud, Melqart Asset Management
- Nicolas Walewski, Alken Asset Management

As you can see, it's quite a list!

Event Details

When: December 8, 2016

Where: Marriott Hotel in Grosvenor Square London W1K6JP United Kingdom

Save the date on your calendar or you can register for the conference by clicking here.

Keith Meister's Thesis on YUM Brands China Spin-Off; Talks Pandora & Williams

Keith Meister of activist firm Corvex Capital was just interviewed by CNBC where he talked about YUM Brands (YUM), Pandora (P), shareholder activism and more.  On the market in general, he said he's bullish on his individual positions but not necessarily the market in general.  He notes, "I'm not a buyer of the market here, per se.  My guess is we're more near a top than a bottom."

Meister on YUM Brands Spin-Off

Corvex is the largest shareholder of YUM and will spin-off its China business to shareholders on November 1st and he believes it's "1 plus 1 equals more than 2."

He notes that the remaining HoldCo will be a 98% franchised, asset light business in the quick service food industry.

Meister says the China co is a different story as 7,500 restaurants (KFC, Pizza Hut) in China gives them a huge advantage as they were first to move and have become the dominant player there in the QSR space and they can now go into tier 2 and tier 3 cities.  He acknowledges that it will be a volatile ride, but says it can be an 'up and to the right' chart over time.

He argues it should trade at 10-12x EBITDA after spin-off, but acknowledged it could start trading around 8x which would basically be trough earnings.  "The market's not gonna make it easy to own YUM China, but that's where I think the best return will be."

He feels the remaining HoldCo will trade more like an annuity, with smoother returns. 

On shareholder activism, Meister says that these types of investors are simply trying to buy good businesses, help make positive changes, and acting like an owner in the public markets.

Meister on Pandora (P)

Meister still owns Pandora (P).  When asked if they're going to sell themselves, he said he didn't know.  He compared the company to competitor Spotify and notes the gap in valuation as one is private and one is public.   He argues that music is so core to many tech players these days (Apple, Amazon, etc) and he says "so it's a hugely valuable piece of property for someone who wants to win."

He concedes the streaming business is a commodity business, but argues that Pandora isn't due to the built up userbase as an asset.

Meister on Williams (WMB)

The Corvex founder also talked about Williams (WMB) and has left the board and commended the company on the work done.  He personally feels that the company has "undermaximized the opportunity set" over the past 5 years.

He thinks it could probably be worth more as part of another entity.  He thinks consolidation is happening and you don't want to be left out.  "It's hard to build new pipeline, so it makes existing pipeline more valuable." 

We'll post up the video of the interview once it's released.  Be sure to also check out CNBC's interview with David Tepper from yesterday, as well as their conversation with Carl Icahn.

Nelson Peltz Not As Cautious As Others, Talks General Electric

Nelson Peltz of Trian Partners appeared on CNBC today and gave his view on the market and his holding General Electric (GE).

Peltz said that "I think Wall Street is talking themselves into a negative environment, and I think they're almost doing it unnecessarily."  He says earnings have been pretty good but revenue's been hard to get, but companies are realizing how much cost they can take out.

"I'm not a macro guy, but I think my portfolio's cheap.  I think you're gonna see a little growth in Europe this year for the first time."  He says Latin America is a problem, Europe is getting better, but 'who knows' on China.

On General Electric (GE), his largest holding, Peltz noted that GE has been a good performer since last year and he thinks "it's the best set of industrial assets on the planet.  85-90% of their revenue today is service revenue and if you look at the business peak to trough through the great recession and if you look at the businesses in there today, earnings were down 5%."

He doesn't know what the quarter's earnings are gonna be but he doesn't seem to care as he's "in this thing for a longtime."

Peltz also touched on Pepsi (PEP), which he's now out of.  They took $1 billion a year in costs out for 3 years in a row. 

On shareholder activism, Peltz floated an idea of 'private equity in public markets' where long-term owners hold stocks for longer periods of time while enacting positive change and helping a business grow.

He thinks Hillary Clinton wins the election and the market could stay where it is, unless she takes both Houses and then it'd go down.

We'll post up the video of the interview once it's released.  Be sure to also check out CNBC's interview with David Tepper from yesterday, as well as their conversation with Carl Icahn.

Jim Chanos Still Short Tesla & Caterpillar

Noted short seller Jim Chanos of hedge fund Kynikos Associates just spoke with CNBC about

Chanos confirmed he's still short Tesla (TSLA) amid rumors that the Model 3 is delayed with production/deliveries.  "Never a dull moment in Tesla land," Chanos said.

"I'm dumbfounded that the board would go ahead with this deal (with SolarCity (SCTY)).  They're growing into a business they don't need to grow into. They're going to pretty much double their cash burn by taking it on, it just makes no sense." Chanos's firm believes SolarCity is an insolvency ex-the deal. 

He also mentioned how Caterpillar's (CAT) CEO was departing.  When asked if he's still short, Chanos said, "Yeah, the fundamentals in our view have not yet changed, we haven't seen any evidence of it."

Chanos also pointed out that the China real estate bubble still hasn't happened yet (popped) so that's still ahead of us, he says. 

We'll post up the video of the interview once it's released.  Be sure to also check out CNBC's interview with David Tepper from yesterday, as well as their conversation with Carl Icahn.

Tuesday, October 18, 2016

David Tepper Cautious But Not Outright Bearish

David Tepper of hedge fund Appaloosa Management made a rare media appearance on CNBC and gave his thoughts on the market.

Tepper noted that "We're pretty light in the stock market right now and we have a lot of cash.  We're probably more positioned in the bond market right now.  I just don't see the market having the ability to move up that much.  I think the upside/downside is not the most favorable I've seen.  It's not a great environment."

Tepper also touched on the election, noting that it's a "fairly bad choice at the top."  He also said that, "Depending on the outcome of the election, the market can move different ways.  So, generally speaking, pretty cautious on the market, not outright bearish on the market."

He said this environment would probably be 'ok' returns, but not 'great.'

He particularly focused on the outcome of who wins the White House and who wins Congress, basically saying that different market outcomes will be determined by those results.

Embedded below is the video of David Tepper's CNBC interview:

Video 1

Video 2

You can also view Carl Icahn's interview here as well.

Carl Icahn: Companies Overvalued Considering Risk Premium

Activist investor Carl Icahn made an appearance on CNBC yesterday to share his thoughts about the market.

He emphasized his stance that he's more and more concerned about the stock market.  He pointed to the fact that the middle class isn't seeing incomes they need, there's underfunded pensions, and rates are still too low.

Icahn said that, "A lot of S&P companies are way overvalued considering the risk premium"  He's having a hard time finding opportunities in this market but did note that some are "uniquely undervalued."

On Herbalife (HLF), Icahn continues to think that it's undervalued even after a big rally.  He reiterated that Bill Ackman (who is short HLF) is wrong about the stock and Icahn noted that HLF could still be "the mother of all short squeezes."

Icahn also noted: "If you want to be a successful investor, you look for things that are obvious but not apparent.  You have companies that there's some unique quality that aren't apparent that you buy.  Sometimes it takes years and years and years.  The activism is a catalyst for that obviously.  I think our portfolio is made up of those."

Embedded below are videos of Icahn's CNBC interview:

Video 1

Video 2

Video 3

You can view recent portfolio activity from Icahn here. And you can also check out David Tepper's interview here.

Jeff Gundlach: Watch 2,130 Level of S&P 500

DoubleLine Capital's Jeff Gundlach was interviewed on CNBC yesterday and here's his thoughts:

And although he's a fixed income manager, Gundlach often opines on the stock market and this time was no different.  He said that, "I would turn particularly negative if the S&P closed twice below 2,130."

He notes that the Fed wants to raise rates in December once the election ends.  He also mentioned he's turned negative on most assets since July.

Gundlach said he doesn't think the election is all that important because he feels that both candidates would be 'caught up in the trend' of fiscal stimulus.

Embedded below is video of Gundlach's CNBC interview: