Friday, October 27, 2017

Notes From Capitalize For Kids Conference 2017: Einhorn, Dreyfus & More

The 2017 Capitalize For Kids Conference recently took place and featured hedge fund managers sharing investment ideas to benefit charity to help solve challenges in children's brain and mental health.  Below are notes from some of the speakers' presentations:

Capitalize For Kids Conference Notes 2017

David Einhorn, Greenlight Capital: Presentation

-  Approaches the market from a bottoms-up perspective and is still finding cheap stocks to buy, both on a relative and absolute basis. Greenlight is always net long and is currently operating within its average exposure.

-  Despite 8+ years of underperformance by “value” investors, believes over time value investing outperforms momentum and growth investing. Believes these trends are cyclical/seasonal but does not know when this will end.

-  Has kept the same “playbook” his whole career, does not believe he has the capability to change this. Will go through market periods where people view him a smarter than he is and then also have periods where is looked at dumber than he is.

-  Look for a margin of safety within individual investments, if the thesis is wrong, would like to “break-even or the stock is dead money”, but if a little bit right or mostly right, should be rewarded.

-  If he thinks he is wrong on a position, he will exit right away, however if he is still holding on (to a mark to market loss), he will keep on fighting. If large losses are realized, he fundamentally misunderstood what was going on in the business.

-  Two big losses: SunEdison (most recently) and New Century (in 2009-10) – almost lost 100% on each

-  One of the big advantages available in the market is time arbitrage (since institutional investors only care about 6-12 months) and there is a good amount of opportunities available where the main advantage is greater patience

-  On the short side, generally doesn’t short on valuation, usually needs deteriorating business model with large headwinds. He created the bubble basket in 2013 (to short ~40 stocks on valuation basis).

-  He approached this very simply. Looked at I/S and B/S and valued the business (without looking at the business model/etc. to remove the “story”). If the value estimate was 10% or less of current market value, he would short it). Has made money on most of the shorts (15-20 still remain active).

-  He is still short Tesla (TSLA), Amazon (AMZN), Netflix (NFLX), Athenahealth (ATHN). Still likes these shorts

-  Does not view himself as an activist. He might recommend things to management over time if they want advice or if they had a really good idea.

-  For General Motors (GM), he thought the dual class shares pitch was a really good idea, however, they were outplayed by General Motors management with their force of consultants, proxy advisors,lawyers, public relations etc. – wants to remain quiet now but still believes the idea makes sense.  General Motors is largest long position.

-  Active vs. Passive: In a momentum market, passive will work better as most indices are market cap weighted and index buys more of what’s doing well. Overtime, there is value to be had with active investors. From the GM proxy battle, he had to work with many index proxy managers and was very difficult (poor alignment of interests, index doesn’t care if stock goes up/down)

-  Doesn’t like cryptocurrency, too volatile to be store of value.  Doesn’t do much macro but likes natural gas and gold and is also short Germany/France sovereign debt (negative yields!).

If you missed it, you can also view David Einhorn's Greenlight Capital Q3 letter here, as well as Einhorn's presentation at GIBI Dallas Conference as well.

Dan Dreyfus, 3G Capital: Long Wheaton Precious Metals (WPM)

-  Long Wheaton Precious Metals:  Shares are down 61% since peak in 2011; Believes without movement in commodity price

-  Three steps to get back to mid-$40 or so versus $20 current stock price:  Resolve near-term creating overhang $25, Realize value of hidden assets $35, Upside from normalizing of gold/silver ratio,  $45

-  Business model is very simple: help finance mines for E&Ps. Typically, E&Ps can finance a mine two ways: Equity (very expensive) or Debt (add covenants; and difficulties/risk of losing asset).  Streaming allows them to sell stake upfront and Wheaton can buy committee straight from the company at a reduced price. Upside for the streaming is that the upside is free (from production and commodity price)

-  Streaming companies have massively outperformed gold miners since 2010. Streaming companies do not face any of the risks miners face (geopolitical, regulatory, delays, cost inflation, etc.)

-  Step 1 - Two outstanding issues; $5 per share of value:  CRA Audit – thinks it’ll settle for a low amount sometime in the next 6-9 months. The company is being looked into as it setup a foreign subsidiary to accept foreign profits.  San Dimas Stream: Owner of the mine is about to go bankrupt, asset will survive (stream is at asset level, doesn’t matter who the owner is); despite current owner having difficulties

-  Step 2: Exceptional Growth (hidden assets) - $10 per share of value.  Wheaton has a lot of production currently and has hidden productions assets on their balance sheet (on the verge of being developed). No capex required to increase production (one of the pros of streaming companies).  Demand of precious metals is still important; copper for city development, electric vehicles; Rosemont/Salobo II mines development to Wheaton has the silver stream for Pascua-Lama, very important project for Barrick Gold.

-  Step 3: re-rate of Silver - $10 per share of value.  Gold:silver ratio at all-time high for gold, however thinks due to cyclical reasons silver demand should rebound driven by solar, industrial demand, etc.  All of these steps can happen very soon.

Jimmy Levin, Oz Management: Long Altaba (AABA)

-  The market is at all-time highs on a relative and absolute basis.  Oz Management looks for investments where they can make money on.

-  Long pitch: Altaba (AABA):  This is a holding company whose main asset is Alibaba (BABA) stock, along with some other assets (like Yahoo Japan).  It trades at a 33% discount to NAV.  Management is incentivized to close the discount between market value and NAV. How quick the discount is closed, as well as how much it closes by is important for compensation targets.  Management is also buying stock (cash source from selling assets) in order to help close the discount

-  Believes the best outcome is the vehicle trades at 1x NAV, which makes sense for an asset of this nature. On the other hand, hard to lose money especially if you are short Alibaba to hedge out systematic risk.

-  Risks include: Mark to Market losses, Both Altaba and its largest holdings are publicly traded, and hence the discount may fluctuate

-  Upside could be: Tax policy; lower corporate tax will help (excess money comes to shareholders), market rumors are that Alibaba will buy back units from Altaba (could help realize value very quickly.)

Brandon Osten, Venator Capital: Long EnerCom

-  Venator is about $200 million in assets; with two strategies (L/S and income)

-  Long Entercom (leader of old school radio, radio is #1 in terms of ROI for advertisers)

-  Earlier in 2017, Entercom agreed to reserve take-over CBS Radio (second largest radio operator in the U.S.), but it was underutilized/under-managed operation. Also, there is FTC deregulation which they could benefit from.o Once transaction closes, float should also increase notably.

-  Radio is #1 in terms of ROI for advertisers (cheap production and local content); listenership is stable and listening hours are also stable.

-  Strong management team with ability to increase margins and a track record of FCF generation and balance sheet deleveraging.

-  CBS assets are solid – strong stations in top markets, sports based; size and scale

-  This vehicle will be family controlled (Field Family) and they have purchased shares via open market since May 2017

-  Estimates 2% revenue growth through 2019, 1% thereafter, 34% EBITDA margin; 25% Tax rate with some buybacks. Believes the stock is worth $16.00 (compared to $11 stock price today).

Jeffrey Olin, Vision Capital: Long General Growth Properties (GGP)

-  Vision Capital, focused on real estate that are publicly traded (both long and short). Have achieved a return of 14% CAGR over the past 10 years (notably beating all relevant indices).  They try to buy real estate that is cheaper/(short more expensive) in the market vs. in private market.

-  GGP owns 100 of the top 500 regional malls in the U.S., Dividend yield of 4.13%

-  Largest shareholder is Brookfield Asset Management (BAM), which owns 34% of shares and has recently bought more.

-  Three reasons to buy the stock: Great Real Estate, Discount to NAV (30%), Various catalysts to close the gap

-  GGP owns a large amount of high quality real estate

-  From a valuation perspective, there is good precedent transactions which support the claim of 30%discount to NAV

-  Regarding catalysts, things such as: good financial performance, improvement of real estate, potential M&A or asset sales to support valuation comps.

-  Brookfield Asset Management could also buy them out given already high ownership.

Check back soon as we'll also be posting the actual slide decks .pdf's of other speakers from the Capitalize For Kids Conference as well.

For even more recent investment conference coverage, we've also posted up the following:

- Notes from Sohn San Francisco Conference (Okada, McGuire & more)

- Notes from GIBI Dallas Conference (Ackman, Einhorn, Russo)

Viking Global Takes Parsley Energy Stake

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding shares of Parsley Energy (PE).  Per the filing, Viking now owns 7.2% of the company with over 17.8 million shares.

This is a newly disclosed equity stake as they did not show ownership on their last 13F filing as of the end of the second quarter.  This latest filing indicates activity as of October 16th.

We also just posted other recent portfolio activity from Viking here.

Per Google Finance, Parsley Energy is "a holding company. The Company is an independent oil and natural gas company. The Company focuses on the acquisition, development and exploitation of unconventional oil and natural gas reserves in the Permian Basin. The Permian Basin is located in West Texas and Southeastern New Mexico and includes three primary sub-areas: the Midland Basin, the Central Basin Platform and the Delaware Basin. The Company's properties are primarily located in the Midland and Delaware Basins, where it focuses on horizontal development drilling and target various stacked pay intervals in the Spraberry, Wolfcamp, Upper Pennsylvanian (Cline) and Atoka shales. As of December 31, 2016, it had an average working interest of 87% in 166 gross (146.7 net) horizontal wells, of which 151 gross (132.4 net) are in the Midland Basin. As of December 31, 2016, the Company operated seven horizontal rigs and three vertical drilling rigs."

Wednesday, October 25, 2017

Greenlight Capital Q3 Letter: New Stakes in HPE, Tempur Sealy, Micron

David Einhorn's hedge fund firm Greenlight Capital returned 6.2% in the third quarter and is now up 3.3% year-to-date.  Their third quarter letter outlines they had average exposure of 118% long and 73% short.

At the end of Q3, Greenlight's top five positions (alphabetical order) were AerCap, Bayer, CONSOL Energy, General Motors, and gold.

New Positions in Hewlett Packard Enterprise, Tempur Sealy, Micron

The letter highlights that they established a few new positions.  First, they entered Hewlett Packard Enterprise (HPE) shares.  They see earnings of $1.40 to $1.70 over the next few years as the company recently sold its outsourced services and software businesses.  They bought at $13.29 per share.

Second, they re-entered a previous holding: Micron Technology (MU).  They feel the DRAM market has improved as have the company's earnings, though think investors are underappreciating the improvements.  They bought around $29.21.

Thirdly, Einhorn's firm entered Tempur Sealy (TPX).  We posted Einhorn's presentation on Tempur Sealy from the GIBI Dallas Conference recently as well.

Other interesting notes: they covered their short of Best Buy (BBY), closed their longs in PVH and Axiare Patrimonio.

Embedded below is Greenlight Capital's Q3 letter:

Credit to ValueWalk who posted it first.

For more hedge fund letters, we also posted up Third Point's Q3 letter here.

Darsana Capital Boosts New York Times Position

Anand Desai's hedge fund firm Darsana Capital has filed a 13G with the SEC regarding shares of The New York Times (NYT).  Per the filing, Darsana now owns 5.8% of the company with over 9.41 million shares.

This is an increase from the previous 3 million shares Darsana owned at the end of the second quarter per their last 13F filing.  The new 13G indicates portfolio activity as of October 12th.

We've also highlighted some other recent portfolio activity from Darsana Capital here.

Per Google Finance, The New York Times is "a media company focused on creating, collecting and distributing news and information. The Company's principal business consists of distributing content generated by its newsroom through its print, Web and mobile platforms. In addition, it distributes selected content on third-party platforms. The Company includes newspapers, print and digital products and investments. The Company's businesses include newspapers, such as The New York Times (The Times); Websites, including; mobile applications, including The Times's news applications, as well as interest-specific applications, such as NYT Cooking, Crossword and others, and related businesses, such as The Times news services division, product review and recommendation Websites The Wirecutter and The Sweethome, digital archive distribution, NYT Live (its live events business) and other products and services under The Times brand."

Trian Fund Reduces Bank of New York Mellon Stake

Nelson Peltz's Trian Fund Management has filed a Form 4 with the SEC regarding its stake in Bank of New York Mellon (BK).  Per the filing, Trian sold over 5.7 million shares across October 20th, 23rd, and 24th.

They exited shares at weighted average prices of around $53.13, but the bulk of their sale came at $52.22.  After these sales, Trian is left owning 16.56 million shares.

The filing notes that they sold for portfolio management purposes as one of the lock-up periods ended on one of their investment funds which solely held BK shares.

We also recently posted about another stock Trian was selling.

Per Google Finance, Bank of New York Mellon is "an investments company. The Company operates businesses through two segments: Investment Management and Investment Services. The Company also has an Other segment, which includes the leasing portfolio, corporate treasury activities (including its investment securities portfolio), derivatives and other trading, corporate and bank-owned life insurance and renewable energy investments, and business exits. As of December 31, 2016, the Company had $29.9 trillion in assets under custody and/or administration and $1.6 trillion in assets under management. The Company's Investment Management boutiques offer a range of actively managed equity, fixed income, alternative and liability-driven investments, along with passive products and cash management. The Company offers asset servicing, clearing services, issuer services and treasury services to its clients."

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.