Wednesday, September 5, 2018

Capitalize For Kids Investors Conference: 85% Sold Out

The 2018 Capitalize for Kids Investors Conference is only two months away and is now 85% sold out.  The lineup features world-renowned investing minds including Bob Prince, Co-CIO of Bridgewater Associates, David Rubenstein of The Carlyle Group, Jeff Ubben of ValueAct Capital, Ed Garden of Trian Fund Management, Jeffrey Smith of Starboard Value, and many more.

In total, more than $1.5 million will be raised to build capacity in the youth mental health sector.  The event takes place on October 24th & 25th in Toronto.

Learn more and register:  https://www.capitalizeforkids.org/conference/

Embedded below is a one-pager for the event



Thursday, August 30, 2018

Warren Buffett Interview: Bought More Apple, Berkshire Buys Back Stock

Warren Buffett of Berkshire Hathaway was just interviewed by Becky Quick on CNBC.  Here's a summary of his thoughts:

He notes he bought a little more Apple (AAPL) recently.  He doesn't care about one quarter or one year's worth of iPhones sold.  He'd obviously like to see each product cycle do well, but he notes he's mainly viewing the company as an indispensible utility.  He argues that the value you get on a daily basis for only $1000 (price of an iPhone) it's a no-brainer.  People are so attached to their devices and use them for so many different things.  He doesn't own an iPhone but has an iPad and uses it frequently.  Would love to see the stock pullback as he could buy more or the company could buyback more stock at cheaper levels.

Berkshire hasn't been buying more airline stocks mainly because he doesn't want to go over the 10% ownership threshold in them, and he has to trim them if the companies are buying back stock.

Buffett said that consumer packaged goods are a good business from a return on tangible assets perspective.  While he acknowledged the businesses have seen increased competition and changing consumer tastes, they're still a good place to be.  He likes brands but is aware it's a tougher environment than it used to be, especially with the stocks much higher these days.  When asked about Campbells (CPB), he said Berkshire wouldn't be interested but he couldn't really speak for Kraft Heinz (KHC).  He said it's very hard to offer a premium for a packaged goods company.

Berkshire bought a little bit of its stock recently, Buffett notes.  They removed the previous restriction of a multiple of book value.  They're now looking at it from an intrinsic business value perspective.

"The economy since the fall of 2009 has gotten progressively better, but it started from a very low base.  We've had 9 full years of improvement in business. Business is good, across the board."

Noted that stocks are better than bonds and real estate.

He's seeing inflation in input costs on raw materials.  It's hard to say if that's due to the tariff situation or other factors, but he noted it increased certainly over the last year and particularly after the trade war situation.  He specifically noted steel, building materials, as well as paint cans as areas where they're seeing increased costs.

On Fed chairman Jay Powell, Buffett likes him and thinks he's doing a good job and will do what's best for the economy.


Tuesday, August 21, 2018

13F Filing Summary: New Issue Just Released

Want to find out what stocks top hedge funds have been buying, selling, and shorting?  Our 88-page quarterly newsletter summarizes the latest 13F filings of 25 top hedge funds.

The brand new Q2 issue of Hedge Fund Wisdom is now available.  Subscribers please login at www.hedgefundwisdom.com to download it.


Inside The New Issue


- Investment Thesis Summaries of Lennar (LEN) and NXP Semiconductor (NXPI).  Quickly get up to speed on why managers were buying these stocks in Q2

- New Consensus Buy / Sell Lists: See the most popular stocks among top hedge funds

- Reveals Latest Portfolios of 25 Top Managers: David Tepper, Steve Mandel, Seth Klarman, Chase Coleman, Lee Cooperman and 20 other top investors (full list here)


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Friday, July 6, 2018

Marc Andreessen's Recommended Reading List 2018

If you're looking for some good summer reads, here you go.  Marc Andreessen, founder of venture capital firm Andreessen Horowitz recently tweeted a list of books he's read and recommends. 

It's a diverse list and isn't filled with finance books like so many other recommended reading lists we post, so this will certainly broaden your horizons.  Here's the list with his tweeted comments about each book.


Marc Andreessen's Recommended Reading List 2018


Expert Political Judgment: How Good Is It?  How Can We Know? by Phil Tetlock:  "Is the future knowable, and by whom?  All pundits and commentators should publish their prediction track records, yet don't.  What to pay attention to and what to ignore."


Thinking, Fast and Slow by Daniel Kahneman:  "Captivating dive into human decision making, marred by inclusion of several/many? psychology studies that fail to replicate.  Will stand as a cautionary tale?"


Thinking in Bets by Annie Duke:  "Compact guide to probabilistic domains like poker, or venture capital.  Best articulation of 'resulting', drawing bad conclusions from confusing process and outcome.  Recommend for people operating in the real world."


The Spider Network by David Enrich: " 'Billions'-esque saga of global financial market manipulation, at mind-boggling scale and hiding in plain sight, by a small cabal of bankers in London."


A Guide to the Good Life: The Ancient Art of Stoic Joy by William B. Irvine: "Best (?) walk through the ancient/current philosophy of Stoicism.  You can't control other people but you can control yourself, so do that."


The Courage to Be Disliked by Ichiro Kishimi & Fumitake Koga:  "Smash hit in Japan, and easy to see why.  Adlerian psychology meets Stoic philosophy in Socratic dialogue.  Compelling from front to back.   Highly recommended."


All Out War: The Full Story of How Brexit Sank Britain's Political Class by Tim Shipman:  "Inside story of how Britain decided to exit the EU.  Economic self-destruction or national liberation?  Repercussions to play out for decades."


When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle by Scott Wapner.  " 'Wall Street'-esque battle between Bill Ackman and Carl Icahn over unlikely target Herbalife.  Sip a delicious Herbal Aloe Shake while reading."


But What If We're Wrong?: Thinking About the Present As If It Were the Past by Chuck Klosterman:  "Wide-ranging meditation on how to think about the reality that we're probably wrong about most things we believe.  Hard to read and not emerge humbled."


Chasing Hillary:  Ten Years, Two Presidential Campaigns, and One Intact Glass Ceiling by Amy Chozick:  "On the bus/in the plane with the Hillary campaign.  Revealing in many dimensions at once, and highly entertaining.  Best book on the 2016 campaign so far?"


The Strange Death of Europe by Douglas Murray: "One perspective on the politics of immigration in Europe, playing out in real time, e.g. Merkel almost getting deposed days ago.  Confusing on multiple levels from US perspective."


A Higher Loyalty: Truth, Lies and Leadership by James Comey:  "Certainly the story is well known, but given author's propensity to post photos of himself wearing running shoes in Iowa, potentially relevant again starting next year?"


Conspiracy:  Peter Thiel, Hulk Hogan, Gawker, and the Anatomy of Intrigue by Ryan Holiday: "Startlingly deep cultural history of conspiracies, examined through the lens of the brutally effective Gawker takedown, with full access to the main players."


Skin in the Game by Nicholas Taleb:  "Skin in the game as conflict of interest, or as attaching one's livelihood to one's speech?  Who to listen to, and why.  Ideal counterpart to Phil Tetlock's Expert Political Judgment."


12 Rules for Life: An Antidote to Chaos by Jordan Peterson: "A bracing disassembly and reconstruction of a theory of individual progress in the modern world.  Fascinating compare and contrast with The Courage To Be Disliked."


Slugfest: Inside the Epic, 50-year Battle between Marvel and DC by Reed Tucker: "Spellbinding creative and business history of the incredibly imaginative comic book industry in the decades before it ate Hollywood."


Hacks: The Inside Story of the Break-ins and Breakdowns That Put Donald Trump in the White House by Donna Brazile: "Visceral, raw, you-are-there recounting of living through the hack attacks and resulting meltdown of the DNC in 2016."


Days of Rage: America's Radical Underground, the FBI, and the Forgotten Age of Revolutionary Violence by Bryan Burrough: "How 1960s racial politics descended into 1970s terrorist bombings, thanks to privileged college students breaking very bad."


Civilian Warriors: The Inside Story of Blackwater by Erik Prince: "The founding and growth of military contractor Blackwater as told by its founder and CEO; newly relevant due to the Mueller investigation."


The Rise of Superman: Decoding the Science of Ultimate Human Performance by Steve Kotler: "Startling walk through a series of domains where peak human performance is rising at remarkable rates due to 'flow state'.  Thought provoking and then some."


Devil's Bargain: Steve Bannon, Donald Trump, and the Storming of the Presidency by Joshua Green: "Best (?) book so far on the Republican side of the 2016 race, and a deep dive into the intellectual origins of Bannonism and to some extent Trumpism."


Shattered: Inside Hillary Clinton's Doomed Campaign by Jonathan Allen & Amie Parnes: "Best (?) book so far on the Democratic side of the 2016 race, most provocatively on the impact of the press coverage of the email hacks on the last stages of the race."


Living with a SEAL: 31 Days Training with the Toughest Man on the Planet by Jesse Itzler: "What's it like to train with a Navy SEAL in winter in New York for a whole month?  Featuring the truly remarkable American hero David Goggins."


The Myth of the Rational Voter by Bryan Caplan: "The median American is a moderate national socialist - statist to the core on both economic and social policy.  Given public opinion, the policies of First World democracies are surprisingly libertarian."


A Very Expensive Poison: The Assassination of Alexander Litvinenko by Luke Harding: "The astonishing story of the Litvinenko and Perepilichnyy assassinations in the UK; reads like a Lee Child thriller; plenty topical now."


Lone Survivor: The Eyewitness Account of Operation Redwing and the Lost Heroes of SEAL Team 10 by Marcus Luttrell: "The film was fine but the book is unreal; incredibly vivid story of superlative American heroes."


How to Live: A Life of Montaigne in One Question and Twenty Attempts at an Answer by Sarah Blakewell: " 'How to get along with people, how to deal with violence, how to adjust to losing someone you love - All versions of a bigger question: How do you live?' "



If you're looking for even more books, be sure to also check out Ray Dalio's recommended reading list, as well as Mohnish Pabrai's recommended reading list, or any of the others we've linked on the right sidebar of the MarketFolly homepage.


Thursday, June 21, 2018

Howard Marks' New Memo: Investing Without People

Oaktree Capital's Chairman Howard Marks has penned his latest memo.  It is entitled Investing Without People and talks about the evolution of the markets with the increasing presence of index/passive investing, quant strategies, and machine learning/AI.

Marks writes,

"When people invest more in certain stocks than others, the prices of those stocks rise in relative terms. And when everyone decides to refrain from performing the functions of analysis, price discovery and capital allocation, the appropriateness of market prices can go out the window (as a result of passive investing, just as it does in a mindless boom or bust). The bottom line is that the wisdom of investing passively depends, ironically, on some people investing actively. When active investing is dismissed totally and all active efforts cease, passive investing will become imprudent and opportunities for superior returns from active investing will reemerge. At least that’s the way I see it."

He then concedes that computers can do many things better than investors. But at the same time he notes that, "Computers can do an unmatched job dealing with the things that can be counted: things that are quantitative and objective. But many other things – qualitative, subjective things – count for a great deal, and I doubt computers can do what the very best investors do."

Marks' Upcoming New Book

Also, it was recently revealed that Marks has a new book coming out in a few months entitled Mastering The Market Cycle: Getting The Odds On Your Side.

Marks' Latest Memo

Embedded below is Howard Marks' new memo, Investing Without People



You can download a .pdf copy here.


Monday, June 18, 2018

Julian Robertson Interview: FANG Stocks Not Frothy At All

Tiger Management founder Julian Robertson was recently interviewed by CNBC.  Here's a summary and the full video below:

- When asked about Paul Tudor Jones' recent comments about stocks heading higher into year-end, Robertson said that, "I think there's a very good chance of that happening (in the next year) and I'm positioned accordingly."

-  He thinks it's possible that interest rates go up so high so fast that the Fed would have to ease up a bit.  But doesn't think rates will go 'wildly' up

- Says the President has done a reasonably good job, but could do with a dose of humility

- Tax cuts have helped corporate earnings but also the earnings of the middle class tremendously

- Feels a slowdown is at least 6 months and 'hopefully' 2 years away

- Tech stocks: he doesn't think FANG stocks are frothy at all, especially relative to the rest of the market. This is one area where he feels he differs in opinion from a lot of market participants.  Adds Microsoft (MSFT) to that bunch as these stocks have growth rates similar to their multiples

-  He likes the management at many of these companies, Facebook etc

-  Air Canada at 3x next year's cashflow is not an expensive stock and is 'beautifully run'.  Also likes Ryanair in Europe.  Doesn't really have any airline favorites in the US right now

-  Loves the banks, thinks they're very reasonably priced in relation to earnings.  Huge cashflow yields next year and thereafter.  Thinks they're in terrific shape, likes JPMorgan (JPM) and Bank of America (BAC)

-  Would tell grandchildren to own FB, BAC, JPM, probably Citigroup (C), which is 'reasonably priced'

Embedded below is the video of Julian Robertson's CNBC interview:

.




Wednesday, June 13, 2018

What We're Reading ~ 6/13/18


Big Mistakes: The Best Investors and Their Worst Investments [Michael Batnick]

Assessing the debt picture [Fat Pitch]

Mary Meeker's 2018 internet trends report [KPCB]

Netflix: inside the binge factory [Vulture]

Proprietary product distribution is better than sliced bread [25iq]

The cult of Peloton: reinventing the fitness industry [Adweek]

How millennials became the world's most powerful consumers [FT]

What's driving the billion-dollar natural beauty movement? [Fast Company]

Gucci strikes gold in China, thanks to youth who spend it all [Bloomberg]

How the game Fortnite captured teens' hearts and minds [New Yorker]

Spotify vs Pandora: which is winning the ad-supported game? [Billboard]

A worrying turn ahead for auto loans [WSJ]

NASCAR tries to keep pace in today's ridesharing world [Washington Post]

On watches: an investment on your wrist [NYTimes]

A framework for analyzing factor returns [OSAM]


Paul Tudor Jones Interview: Sees Rate Jumps & Stock Market Higher Later This Year

Paul Tudor Jones of macro hedge fund Tudor Investment Corp recently sat down with CNBC for an interview.


Tudor said that, "Three things that are driving the world today... and they all start here in the United States. Fiscal policy, monetary policy, and of course a trade irritant, rather than a trade problem."  He says you have to monitor for signs of a further trade war escalating.

If Tudor was running the Fed, he said interest rates would be 150 basis points higher than they are now. 

Single best investment that's working for him right now: "Literally as light as I've been... I can't remember the last time I've been this light."  He doesn't have a lot of macro positions on right now, as the reward/risk is diminished at this particularly point in time.

"I like to have significant leveraged positions when I think there's an imminent price move directly ahead."

He thinks the third and fourth quarters are going to be phenomenal trading periods after a summer lull.  He thinks rates will move significantly higher and the stock market also has "the ability to go a lot higher at the end of the year."

Comparing this time period to past ones, he mentioned 1987 ( but "not necessarily saying we're going to have a crash").  He also listed 1999, or 1989 in Japan.  He thinks this will end with a lot higher prices and forcing the Fed to shut it off.  "It's an old story, we'll probably play it again."

"Rates have got to go up enough to either shut the economy down, and overwhelm from real money selling like we had in '07 those buybacks, or to make it economically less compelling for companies to issue debt and buyback stock, this is real simple."

On North Korea:  Unless it escalates into some military issue, it was a non-event and non-issue.  He thinks it will fade away.  The summit was anti-climactic.


Embedded below is the full half-hour video of Paul Tudor Jones' interview with CNBC:



Tuesday, June 12, 2018

PointState Capital Boosts Stake in The Medicines Company

Zach Schreiber's hedge fund firm PointState Capital has filed a 13G with the SEC regarding its position in The Medicines Co (MDCO).  Per the filing, PointState now owns 5.3% of the company with over 3.87 million shares.

This is up from the 3.7 million shares they owned at the end of the first quarter.  The filing was made due to portfolio activity on June 1st.

Per Yahoo Finance, The Medicines Company is "a biopharmaceutical company, provides medicines to treat acute and intensive care patients. The company markets Angiomax, an intravenous direct thrombin inhibitor used as an anticoagulant in combination with aspirin in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty, and for patients undergoing percutaneous coronary intervention in the United States. It primarily focuses on developing Inclisiran, a lipid-lowering drug to reduce LDL-cholesterol (LDL-C) in patients with atherosclerotic cardiovascular disease or cardiovascular risk-equivalents. The company has collaboration agreements with Alnylam Pharmaceuticals, Inc.; SciClone Pharmaceuticals; and Symbio Pharmaceuticals Limited. The Medicines Company was founded in 1996 and is based in Parsippany, New Jersey."


Baupost Group Sells PBF Energy, FIles 13G on Colony NorthStar

Seth Klarman's hedge fund firm Baupost Group has filed a couple of 13G's with the SEC regarding shares of both PBF Energy (PBF) and Colony NorthStar (CLNS).


Baupost Sells PBF Energy

Per a 13G filing, Baupost Group no longer owns shares of PBF Energy (PBF).  The filing notes they sold the stake on May 31st.  They had previously owned a $268 million stake in the company as of the end of the first quarter.

Per Yahoo Finance, PBF Energy is "together with its subsidiaries, engages in the refining and supply of petroleum products. The company operates through two segments, Refining and Logistics. It produces gasoline, ultra-low-sulfur diesel, heating oil, diesel fuel, jet fuel, lubricants, petrochemicals, and asphalt, as well as unbranded transportation fuels, petrochemical feedstocks, blending components, and other petroleum products. The company sells its products in Northeast, Midwest, Gulf Coast, and West Coast of the United State, as well as in other regions of the United States and Canada. It also offers various rail, truck, and marine terminaling services, as well as pipeline transportation and storage services. PBF Energy Inc. was founded in 2008 and is based in Parsippany, New Jersey."


Baupost Files 13G on Colony NorthStar

Per a separate 13G, Baupost also now shows a 10.02% ownership stake in Colony NorthStar (CLNS) with over 49.68 million shares.  The number of shares they own is unchanged from the end of the first quarter, and so the percentage ownership of the company is likely what triggered the filing.

Per Yahoo Finance, Colony NorthStar, Inc. (NYSE:CLNS) "is a leading global real estate and investment management firm. The Company resulted from the January 2017 merger between Colony Capital, Inc., NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. The Company has significant property holdings in the healthcare, industrial and hospitality sectors, other equity and debt investments and an embedded institutional and retail investment management business. The Company currently has assets under management of $43 billion and manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded real estate investment trusts and registered investment companies. In addition, the Company owns NorthStar Securities, LLC, a captive broker-dealer platform which raises capital in the retail market. The firm maintains principal offices in Los Angeles and New York, with more than 500 employees in offices located across 18 cities in ten countries. The Company will elect to be taxed as a REIT for U.S. federal income tax purposes. For additional information regarding the Company and its management and business, please refer to www.clns.com."


Tiger Global Boosts Sunrun Stake Again

In another slew of SEC filings, Chase Coleman's hedge fund firm Tiger Global has disclosed a further increased stake in Sunrun (RUN).  Per a 13G filing, Tiger now owns 12.8% of the company with over 13.93 million shares.

This is up from the 11.67 million shares we highlighted they owned just a few weeks ago.  A separate Form 4 filed indicates they were buying RUN shares on June 5th through 7th at weighted average prices of $12.3736 and $12.4824.

Per Yahoo Finance, Sunrun "engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It also sells solar leads. The company markets and sells its products through direct channels, partner channels, mass media, digital media, canvassing, referral, retail, and field marketing. Sunrun Inc. was founded in 2007 and is headquartered in San Francisco, California."


ValueAct Capital Files Form 4 on Seagate Technology (STX)

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC regarding its stake in Seagate Technology (STX).  Per the filing, ValueAct now owns over 22.4 million shares.

The filing notes they entered into forward purchase contracts with an exercise date of June 2nd, 2018 and expiration date of December 3rd, 2018.  In total, these contracts represented 946,100 shares and obligated ValueAct to purchase shares at varying prices with the bulk coming at $54.72.

This means ValueAct's total STX stake is up from the 21.45 million shares they owned at the end of the first quarter.

For more on this fund, we've also highlighted another stock they've been buying recently.

Per Yahoo Finance, Seagate Technology "provides data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. The company manufactures and distributes hard disk drives, solid state drives and their related controllers, solid state hybrid drives, and storage subsystems. Its products are used in enterprise servers and storage systems applications; client compute applications, primarily for desktop and mobile computing; and client non-compute applications, including various end user devices, such as portable external storage systems, surveillance systems, network-attached storage, digital video recorders, and gaming consoles. The company offers external backup storage solutions under the Backup Plus and Expansion product lines, as well as under the Maxtor and LaCie brand names available in capacities up to 120 terabytes. It sells its products primarily to original equipment manufacturers, distributors, and retailers. Seagate Technology plc was founded in 1979 and is headquartered in Dublin, Ireland."


Appaloosa Management & Senator Investment Group Send Letter to Allergan Board

David Tepper's hedge fund firm Appaloosa Management has sent a letter together with Alex Klabin and Doug Silverman's Senator Investment Group to the board of Allergan (AGN).  They previously sent letters to AGN's board on May 7th and April 23rd as well.

Here's the text of the latest letter:

"Letter dated June 5, 2018:Board of Directors
Allergan plc
Clonshaugh Business Technology Park
Coolock, Dublin, D17 E400, Ireland

Ladies and Gentlemen:

We write concerning the conclusions drawn from Allergan’s much-heralded strategic review, publicly outlined by Chairman and CEO Brent Saunders on May 30th. Like the rest of the investment community, we were underwhelmed by the Company’s half-hearted attempt to restore strategic momentum. The result of this process is all the more disappointing given our previous discussions and correspondence (attached hereto for reference). In view of this outcome, we are compelled to express our views publicly.

The token measures outlined in Mr. Saunders’ presentation betray the Board and management’s desire to cling to a status quo that has produced three years of steadily declining stock performance and a fire-sale market valuation. It is now clear that fresh thinking is absent from the current regime, thus explaining the market’s complete loss of confidence in the stock. To that point, we reiterate our strong suggestion that at a minimum the Company (1) split the office of CEO and Chairman; (2) retain a new Chairman or CEO from outside the Company; (3) replace at least two additional directors on the current Board; and (4) upgrade management personnel in critical operating units.

Concurrent with these measures, we renew our calls for the Company to stop hiding behind an arbitrary debt reduction target as an excuse to preserve the means to pursue a transformative M&A transaction. Prioritizing such flexibility at this time makes no sense given Allergan’s undervalued equity currency, its mixed M&A record and the market’s loss of confidence in the Company’s ability to deploy capital for the benefit of shareholders. More importantly, it will not address the Company’s malaise. Instead, it is time for Allergan’s management to concentrate on running a world class pharmaceutical and aesthetics business and forego thoughts of, or the exhilaration from, an ambitious acquisition strategy.

In our conversations, Chairman and CEO Saunders has been fond of repeating a famous quotation that “the definition of insanity is doing the same thing over and over again, but expecting different results”. Until Mr. Saunders and the Board heed this advice, adopt new governance and renew the Company’s operational focus, it appears that shareholders can expect Allergan’s stock price to continue to languish."


Monday, June 4, 2018

Kase Learning Short Selling Conference Presentations 2018

Whitney Tilson recently launched a new investment conference focused on short selling called the Kase Learning Short Selling Conference.  They've released some videos of pitches from the presentations and we've aggregated them here along with notes from each talk if you just want a quick summary.

Click each link below to go to the presentation.


Kase Learning Short Selling Conference Presentations 2018

- Sahm Adrangi (Kerrisdale Capital): On ad fraud and Quinstreet (QNST)

- Mark Spiegel (Stanphyl Capital): Short Tesla (TSLA)

- Gabriel Grego (Quintessential Capital): Short Folli Follie

- Jillian McIntyre (221B Capital): Short Intelsat (I)

- Berna Barshay (Viola Capital): Short Ralph Lauren (RL)

- Enrique Abeyta: Short Anheuser Busch InBev (BUD)

- Chris Brown (Aristides Capital): Short Energous (WATT)

- Asher Jacobs & Jade Hu (Columbia MBAs): Short Stericycle (SRCL)


Mark Spiegel Short Tesla Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Mark Spiegel who pitched short Tesla (TSLA).  He thinks the company is a zero.


Mark Spiegel's Presentation: Short Tesla (TSLA)

- Telsa's financials are horrible and has no moat of any kind, and this is all before a ton of competition comes online

- Management can't be trusted after Elon Musk made misleading statements

- Lost over $25,000 per car sold based on recent earnings.  Sales of two top models were down double digits year-over-year, again this is before top competition comes online from Porsche, Jaguar and others

- $2.3 billion in negative net working capital, And - $1bn in negative net working capital.  Bulls point to the story being about 'the future' but Tesla's tax credits will expire later this year while competitors will just be starting to use their credits.

- Competition coming:  Jaguar I-Pace coming out is $10,000 less and much nicer.  Jaguar XJ Sedan also going electric.  Audi electric SUV coming 2018 winter and priced $5000 cheaper once Tesla's tax credit runs out.  Porsche's Mission E sedan coming.  Mercedes' ECQ coming out and electric version of the S Class.  Hyundai coming out with a crossover for the mass market.  Chevrolet Bolt out now.  Nissan Leaf next year increases electric range.  First electric Volvo comes out next year.  BMW iX3 comes out in 2 years, and i4 flagship electric car.  The list goes on and on.

-  China is a big market and very important; bulls think TSLA will gain share there but the reality is that so much competition is coming especially in that country that they've already lost

-  Other car companies using larger battery cells and Tesla is committed to smaller, inferior ones

-  Stunning number of executive departures.  Jim Chanos said the only two companies that had similar numbers are Enron and Valeant

Embedded below is the video of Mark Spiegel's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.


Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet: Kase Learning Short Selling Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Sahm Adrangi of Kerrisdale Capital who presented about ad fraud and talked about Quinstreet (QNST) which he published a short report on last month.


Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet (QNST)

- Recently gave a presentation on being short St. Joe (JOE) and short QuinStreet (presentation here), the latter of which plays into the theme of ad fraud

- Ad fraud is basically when online ad impressions or clicks are artificially higher due to bots, not actual users viewing the material.  Pay-per-click ads see 'fake' clicks and then there's sites with tons of fake traffic that are just full of ads to inflate the numbers.  Ad stuffing is when a video has other videos behind the main video someone is watching, giving impressions to something that's not actually being viewed

- Ad fraud is so prevalent and the intermediaries are beneficiaries of it (ad agencies etc), making them slow to adopt preventive measures.  The ultimate loser is the buyer of the ad but it's difficult to detect who is viewing your ad (human vs bot)

-  Technology is rapidly evolving and the bad actors are using more sophisticated measures to generate more fraud

- QuinStreet: if you look at investor presentations or management comments, it's hard to discern where exactly the revenue is coming from (lead generation, or ad-matching placements, etc).   Another report by a separate firm attacked Criteo late last year for suspect traffic as well.

- Walked through examples where some of Quinstreet's sites were receiving traffic from other sites that isn't what it seems: a car insurance site was receiving a lot of traffic, but not from people looking for quotes on car insurance, but rather people earning 'swag bucks' for filling out online surveys and things like that.  Thus car insurers buying ads / paying for leads, weren't really getting what they thought they were (the video below walks through the whole scenario as it's too long to type out)

- Thinks the opacity in the online ad space and lack of disclosures is a good place for short activists to hunt

Embedded below is the video of Sahm Adrangi's presentation:



mbedded below is the slideshow pdf of Sahm Adrangi & Kerrisale Capital's presentation on short QuinStreet (QNST):



Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.


Jillian McIntyre's Short Intelsat Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Jillian McIntyre of 221B Capital who pitched a short of Intelsat (I).  She runs a fundamental long/short equity fund, typically running 20% net short, typically focuses companies with poor corporate governance (Germany, UK, South Africa, Australia).  Previously worked with Sir Chris Hohn's TCI Fund.


Jillian McIntyre's Presentation: Short Intelsat

- 50% downside in her opinion, only 7% short interest.  $14bn of debt, $1bn run-rate of interest every year, negative cashflow

- Believes company is ripe for technology disruption and has a bad business model; needs capital ASAP

- Company is in satellite communications, provides signal broadcast to major networks, media companies etc.  Mainly exposure to Latin America and Africa.  Thinks there's some similarities to SunEdison (which they pitched back in 2015 which went bankrupt): levels of indebtedness & bad business model

- The recent hype surrounding 5G and the big spectrum auction in November has led to irrational exuberance as Intelsat is up almost 300% this year.  Lot of hype around the potential for C band spectrum.  Even if it's allowed by FCC, could take over a year to start to monetize it.  She thinks the company will see disruption in its ancient satellite model.  Lower-orbit satellites will be launched and are better and cheaper than Intelsat's much higher satellites.  Lots of hype also around potential with 'OneWeb'

-  Co has very complex debt structure and is a serial re-structurer: they think it breached covenants and will need to raise $400-500 million and worst case $1.5-2 bn. Don't think they have access to new revolving credit facilities.  Thinks they have aggressive accounting regarding bad debt provision and amortization rates and reliance on future revenue


Embedded below is the video of Jillian McIntyre's presentation:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.


Berna Barshay Short Ralph Lauren Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Berna Barshay of Viola Capital Management who pitched a short of Ralph Lauren (RL). 


Berna Barshay's Presentation: Short Ralph Lauren (RL)

-  Consumer specialist.  Industry ripe with disruption.

-  80% of household purchase decisions made by women, 80% of investment choices made by men

-  Ralph Lauren in the middle of attempted turnaround:  Co has lost 19% of sales last three years.  Why?  Historically positioned as an upscale brand, they over distributed (discounting, margin pressure).  Longtime COO departure led to disruption.  Trying to now pullback on promotions and try to reach a new, younger customer.  Stock up 70% in last 9 months, she's more skeptical on turnaround attempt and speed at which it would happen.

-  In the age of Instagram, brands can't control their story as much.  RL is too focused on North America.  Department stores in secular decline.  Trying to replicate Coach merely by reducing points of distribution

-  Ratio of outlets to full price stores is out of whack and is a challenge to elevating the brand back up.  Co is also omnipresent in the 'off price' channel.  TJMaxx and Marshall has a lot of inventory and continued to grow.  The difference between the $89 polo shirt at their flagship store wasn't that much different from the $35 polo shirt at TJMaxx.  RL has devalued their signature item and devalued their brand in the process.  This will be a headwind in the brand elevation efforts.

-  Co wants to update the product and modernize the brand: does this alienate the core customer they have?  Tough to straddle.  It's a preppy, country club look that's been around since the 70s.  Millennials and younger have much different street style

-  She talked to 200 Millennials about favorite clothing brands and received a wide array of responses: RL hardly on the radar, lots of newer brands, niche brands, etc.  Barriers to entry in clothing have come way down.  RL did much better with men than women in survey.

-  Near-term return to topline growth is nearly impossible due to off-price channel and department stores in secular decline.  Trading at 18x like a luxury goods stock but needs to show tangible results

-  Brand turnaround takes years and thinks that while expectations are low, still thinks estimates are too high.  Upcoming investor day could be a catalyst.  Thinks earnings will be flattish for next 2 years.  N. America growth will be down 4%, 11% earnings miss.  Thinks it should trade around 13x, for 30% downside though it's not a valuation short 

Embedded below is the video of Berna Barshay's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.


Gabriel Grego's Short Folli Follie Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Gabriel Grego of Quintessential Capital who pitched a short of Folli Follie.  (Please note that since presenting earlier this month, the stock traded down 70% and was subsequently halted.)


Gabriel Grego's Presentation: Short Folli Follie

-  Co has 1.3bn euros of sales, trades on the Greek exchange, products are watches, purses, mainly jewelry etc.  70% of revenue and all profit originates in Asia, mainly China.  Now investing into the United States

- Actual sales and profitability are less than accounting suggests. Business is shrinking rapidly, they are worried about potential insolvency

-  Called 630 stores, they only found 289 open... nobody answered or store was closed.  Out of 248 supposed stores in Asia, they only found 64.  Hired Chinese and Japanese teams to do due diligence in the countries.  Went to visit stores, found many were tiny, non-existent or liquidating

-  Claims solid online sales, but traffic is tiny compared to big competitors who supposedly generate similar revenues.  Social media has a tiny presence as well compared to others

-  Thinks the company will have to issue shares or bonds to makeup for a shortfall soon

-  Company claims $1 billion of sales in Asia, but actual China subsidiaries are only showing millions of dollars.  Company has always used the same auditor then suddenly switched to another auditor that's not really as well known

Embedded below is the video of Gabriel Grego's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.


Enrique Abeyta Short Anheuser Busch Inbev Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Enrique Abeyta who pitched a short of Anheuser Busch Inbev (BUD).  

Enrique Abeyta's Presentation: Short Anheuser Busch Inbev (BUD)

-  Thinks there will be negative earnings revisions.  Craft brewers are a threat, but contract brewing and the lower hurdle to entry in the market is the bigger story: it costs very little to start up a tiny beer somewhere and start producing.

-While most legacy beer companies built their advantage via scale and advertising via expensive mediums (TV, print) today advertising costs have come way down via online advertising and you can target the exact type of customer you're looking for.

-  Also thinks Kraft Heinz (KHC) and Disney (DIS) will face similar threats and would be short those as well (KHC: lots of micro brands starting ot popup, DIS: cost of producing content is coming down and others can do so much more cheaply)

Below is the video of Enrique Abeyta's pitch on shorting Budweiser:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.


Chris Brown Short Energous (WATT): Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Chris Brown of Aristides Capital who pitched short Energous (WATT).


Chris Brown's Presentation: Short Energous (WATT)

- Company's stock skyrocketed late last year on FCC approval news.  Says CEO pretty much always lies. 

- Energous has an agreement with Apple

- Company seeking to do RF or wireless charging at a distance: claims to create pockets of energy around your device to charge it. The physics behind it isn't new and technology isn't new.  The science behind it is explained in the video below but basically what they're trying to do isn't practical and is extremely exagerrated

- Lots of insider sales recently

-  Marketing is touting 'vaporware' and doing a good job of hyping things.  He thinks the company is a zero and a fraud.


Embedded below is the video of Chris Brown's presentation:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.


Asher Jacobs & Jade Hu Short Stericycle (SRCL) Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Asher Jacbos and Jade Hu, Columbia MBA students who pitched a short of Stericycle (SRCL).


Asher Jacbos & Jade Hu's Presentation: Short Stericycle (SRCL)

-  See 36% downside over the next 18 months.  Fallout over recent lawsuit settlement is only in the early innings as it highlighted the company's price gouging.  Company won't be able to continue its rollup strategy with 4 turns of leverage.  Numerous accounting redflags highlight the company's deteriorating fundamentals

-  Company focuses on the medical waste market with around 80% market share.  Has expanded to other industries like shredding, environmental waste, and other areas

-  They expect the company's pricing power increases to be capped at around 5%, compared to historic increases of 18% biannually.  Competition will increase in the space as they're heavily spending on marketing to take share

-  Think one segment's revenue will drop 7% based on lack of ability to drive pricing.  Sees volume decreasing 7% (but not as severe as it was previously) as they're making price concessions to drive business.  7% revenue decline leads to a 14% EBITDA decrease

-  Company is seeing a mix shift to lower margin businesses.  Credit rating was recently downgraded, lots of debt due in 2020

-  Thinks management is focused on empire building, as incentive compensation is built on absolute adjusted EBITDA

- Expect continued earnings misses, large asset impairment.  Base case assumes 9x EV/EBITDA.  If margins stabilize and the stock gets a higher multiple, there's only 20% upside, capping risk on the short


Embedded below is the video of their presentation:



And here's a link to their presentation from the Columbia Business School's Graham & Doddsville newsletter.

Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.


Thursday, May 31, 2018

Notes From Sohn Hong Kong Investment Conference 2018

The 2018 Sohn Hong Kong Investment Conference recently took place benefiting the Karen Leung Foundation for gynecological cancer education, prevention, and support.  Fund managers presented investment ideas in a gathering that benefited charity.  Here's a quick summary with notes from the event.


Notes From Sohn Hong Kong Conference 2018

Eashwar Krishnan (Tybourne Capital):  Long: Line (LN).  Dominant messaging platform in Japan and several other countries.  Based on enterprise value (EV) to monthly active users (MAU), Line is the cheapest and most undervalued messaging app in the world.  On this metric, LN trades at $39 while Tencent trades at $207, Naver at $199, Facebook at $180, and Yahoo Japan at $101.  Median number (including others like Kakao, Weibo, Twitter etc) is $67. Sees potential to double your money in three years.  Company can try to take more 'time spent' from other apps and rollout revenue from more advertising, games, financial services and food delivery. Prior to founding Tybourne, he worked at Lone Pine Capital.


Rajesh Sachdeva (Flowering Tree Investment Management): Long: VP Bank (Vietnam Prosperity JSC Bank).  The country has a solid base for an economy and VP Bank is the cheapest bank in Asia yet has the highest returns on equity (ROE).  Largest consumer bank in Vietnam.  5 million customers, around 10% of the labor force of the country.  Has strong underwriting standards.  Thinks the stock can go up 4-5x over the next 3 years as long as there aren't huge economic hiccups.


Avinash Abraham (Torq Capital Management):  Long: Pacific Basin (2343.HK).  Dry shipping company in Hong Kong.  Minor bulks shipping and is "very undervalued."  Company recently became profitable again last year.  Thinks the 10 year bear market in dry bulk shipping is coming to a close.  Company has diversified exposure to products.


Kok Hoi Wong (APS Asset Management):  Short: JD.com (JD).  This has been a consensus long among many managers but argues that it's already priced for perfection.  Thinks impairment losses coming.  Company made bad investments (PaiPai and QQ Wanggou, Bitauto, Tuniu, Yihaodian).  Thinks a big impairment is possible from Yihaodian.  Management is "investing recklessly."  Says to be weary as company can't make a profit in highly competitive Chinese e-commerce market.  Business model is misunderstood. 


Benjamin Fuchs (BFAM Partners):  Long Tencent (700.HK) & Tencent Put Options.  Hedged trade that bets on one of the dominant companies in Asia but allows you to profit from a swing in the stock either direction.  Buy Spring 2019 puts to complement the long equity position. Profitable if shares go more than 15% in either direction


Soren Aandahl (Blue Orca Capital):  Short: Samsonite (1910.HK).  Has previously attacked the company with a recent short report and did so again at the event.  Shares have been halted.  CEO Ramesh Tainwala has been lying about resume & misrepresenting himself as a doctor, calls for his firing.  Company has audit red flags: third auditor in three years.  Pointed out accounting practices and corporate governance.  If you recognize the investor's name he was previously running Glaucus Research which put out a lot of short reports and recently launched an activist fund.


Seth Fischer (Oasis Management): Long Don Quijote Holdings Subsidiary Japan Asset Marketing (8922.JP).  Don Quijote is a retail chain based in Japan that's open 24 hours and sells all kinds of various goods from food to personal care to you name it.  Subsidiary JAM is its real estate segment.  Thinks the company is able to survive "Amazonification of the world" but has been mismanaged.  They've launched an activist campaign, have owned stock since 2017.  Proposed corporate restructuring   Sees 50% upside. Details on their proposal here.


Wesley Wong (Oxbow Capital Management): Long Guangzhou Baiyun Airport (SHA:600004).  Third largest airport in China and 14th largest in the world.  Sees 50% upside in the next year to year-and-a-half.  New terminal coming online will lead to increased number of passenger and rent from retail tenants.  Sees EBTIDA coming in around 20% higher than consensus.


Carl Huttenlocher (Myriad Asset Management): Long MSCI China 2025 Index.  Simple trade, thinks China will be the best global equity market for the next few years.  Chinese A-Shares being included in indexes now will be a catalyst.


Hermes Li (Aspex Management):  Long SJM Holdings (0880.HK).  Likes the casino company as it's poised to benefit from opening the new Lisboa Palace in the back-end of 2019.


Ben Melkman (Light Sky Macro): Thinks inflation in Japan is coming faster than people realize and will yield higher rates.  To bet on this there's two plays: spread trade for bearish exposure on 10-year Japan Commodity Clear House rate or buy banks that will benefit from increased interest rates.


For more investment conference coverage, we've previously posted notes from the Sohn New York Conference and also this week we just posted up notes from the London Value Investor Conference.


ValueAct Capital Takes Olympus Stake

Jeff Ubben's activist investment firm ValueAct Capital has disclosed a 5% ownership stake in Japanese camera and medical device company Olympus (TYO:7733).  Their stake is valued at around $600 million and is a brand new position.  Their core position size seems to be around $1 billion these days, so this is a bit below that.

As far as we're aware, this is firm's first activist bet in Asia.  ValueAct issued a statement, saying, "Olympus has an exceptional business model, market share, technology leadership and emerging markets presence in the global medical device industry.  We think it's an ideal company for our first investment in Japan."

Activism in Japan seems to slowly becoming more acceptable.  Changes in corporate governance in the country have helped that progress.  A few years ago we highlighted Third Point's activist position in Sony and they had also previously invested in Seven & i.

You can view more ValueAct portfolio activity here.


Wednesday, May 30, 2018

Tiger Global Increases Sunrun Position

Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding its stake in Sunrun (RUN).  Per the filing, Tiger Global now owns 10.7% of the company with over 11.67 million shares.  This is up significantly from the 5.74 million shares they disclosed back at the end of the first quarter.

An additional Form 4 filed with the SEC shows Tiger was buying RUN shares on May 25th, 29th, and 30th.  In total, they bought 776,138 shares at weighted average prices from $10.71 to $11.50.  The filing also notes the securities are held by advisory clients of Tiger Global.

Per Yahoo Finance, Sunrun "engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It also sells solar leads. The company markets and sells its products through direct channels, partner channels, mass media, digital media, canvassing, referral, retail, and field marketing. Sunrun Inc. was founded in 2007 and is headquartered in San Francisco, California."


Lone Pine Capital Boosts IQVIA Stake

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding its stake in IQVIA (IQV).  Per the filing, Lone Pine now owns 5% of the company with over 10.45 million shares.

This is an increase over the 9.89 million shares they owned at the end of the first quarter, per their most recent 13F filing.  The most recent trading activity was on May 16th.  To see the rest of Lone Pine's portfolio, check out the brand new issue of our quarterly newsletter.

Per Yahoo Finance, IQVia is "IQVIA Holdings Inc. provides integrated information and technology-enabled healthcare services in the Americas, Europe, Africa, and the Asia-Pacific. It operates through three segments: Commercial Solutions, Research & Development Solutions, and Integrated Engagement Services."


Whale Rock Capital Adds To MongoDB Stake

Alex Sacerdote's hedge fund firm Whale Rock Capital has filed a 13G with the SEC regarding its stake in MongoDB (MDB).  Per the filing, Whale Rock now owns 16.05% of the company with over 3.83 million shares. 

This is way up from the 556,862 shares they owned at the end of the first quarter. 

They originally disclosed the increased position in a separate 13G filing due to activity in late April, showing a 5.83% ownership stake. The most recent filing was made due to activity on May 24th, showing they've further upped their stake to now 16.05% of the company.

Per Yahoo Finance, MongoDB "operates as a general purpose database platform worldwide. The company offers MongoDB Enterprise Advanced, a subscription package for enterprise customers to run in the cloud, on-premise, or in a hybrid environment; MongoDB Atlas, a cloud-hosted database-as-a-service solution; and Community Server, a free-to-download version of its database, which includes the functionality that developers need to get started with MongoDB. It also provides professional services, such as consulting and training. The company was formerly known as 10gen, Inc. and changed its name to MongoDB, Inc. in August 2013"


Tuesday, May 29, 2018

Notes From London Value Investor Conference 2018

The 2018 London Value Investor Conference recently concluded and we've got notes from each speaker's presentation.  Click the links below to go each speaker's pitch.


London Value Investor Conference 2018 Notes


- Dawid Krige (Cederberg Capital): Long Kweichow Moutai (SHA):600519) & Dong-E-E-Jiao (SHE:000423)

- Nigel Waller & Andrew Goodwin (Oldfield Partners): Long Kansai Electric (TYO:9503) & E.ON (ETR:EOAN)

- Ben Preston (Orbis): Long Peabody Energy (NYSE:BTU)

- Nick Kirrage (Schroders): Long Standard Chartered (LON: STAN)

- Mark Asquith (Somerset Capital): Long Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), Cia Hering (BVMF:HGTX3) 

- Alex Wright (Fidelity Special Situations): Long Pearson (LON:PSON), Bunzl (LON:BNZL)

- Stephen Mitchel & Bryan Pilsworth (Foyston, Gordon & Payne): Long Transcontinental (TSE:TCL) & Walgreens Boots Alliance (NASDAQ:WBA)

- Adrian Warner (Avenir Capital): Long HCA Healthcare (NYSE:HCA)

- Stephen Anness (Invesco Perpetual): Long National Oilwell Varco (NYSE:NOV)

- Alvaro Guzman & Fernando Bernad (Az-Valor Asset Management): Long Buenaventura (NYSE:BVN)

- Jonathan Boyar (Boyar Value Group): Long Axalta Coating Systems (AXTA), Acushnet Holdings (GOLF), Madison Square Garden Networks (MSGN), Franklin Resources (BEN), Howard Hughes (HHC) 

- Mark Pearson (Arcus Investment): Long Asanuma Corp (TYO:1852)


Dawid Krige Long Kweichow Moutai & Dong-E-E-Jiao: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Dawid Krige of Cederberg Capital who pitched longs of Kweichow Moutai (SHA:600519) and Dong-E-E-Jiao (SHE:000423).


Dawid Krige's London Value Investor Conference Presentation

Dawid co-founded Cederberg Capital in 2011. From 2005 to 2011 he was at Mondrian Investment Partners where he was a portfolio manager and China specialist. Cederberg are concentrated, fundamental, bottom-up, quality investors focused on China.

Frauds in China exist but they can be avoided. Fraud is not endemic. The recent China Hustle film presents a misleading and overly negative view of Chinese companies.

China is catching up with the US and will overtake it. In terms of STEM graduates - Science,Technology, Engineering, Mathematics – US 5% Vs China 38%. Global Patent applications: US 19% Vs China 43%. Unicorn unlisted start-ups with a valuation of more that $1bn: US 45% Vs China 43%. Yet China only accounts for 4% of the MSCI world index whilst the US is 50%. Over the next 20 to 30years China is going to become 20% to 30% of the MSCI. It will take share from the US.

Long: Kweichow Moutai (SHA: 600519):  Last year Kweichow Moutai overtook Diageo as the world’s largest spirits company. The company is over 300 years old. It spends very little on marketing. Moutai is a national drink and is offered to visiting politicians and dignitaries. It has 99% brand awareness in China. It’s essentially a monopoly with 70% of the spirits market. Its margins are almost 3x Diageo’s. ROIC: 30%. In the last 10 years it has grown at 30% per annum. At a PE 21x 2019 it trades on a similar PE to Diageo but with much more growth.


Long: Dong-E-E-Jiao (SHE: 000423):  Dong is a traditional Chinese medicine company that makes nutritional supplements. The supplements are over-the-counter products that are made from natural ingredients and therefore don’t face regulation. Cederberg think of the company as a luxury consumer goods company and not a healthcare company. The brand has a history that goes back over 2500 years. It has 70% marketshare and 98% brand awareness. It trades on a PE 14x 2019.

Krige said that whether the product works or not is not that important because of its cultural significance. If your parents and your parent’s parents have used it, you are likely to use it.  The biggest risk is from a change in distribution that could happen due to the challenge from e-commerce.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Nigel Waller & Andrew Goodwin Long Kansai Electric & E.ON: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Nigel Waller and Andrew Goodwin of Oldfield Partners who pitched longs of Kansai Electric (TYO:9503) and E.ON (ETR: EOAN).


Nigel Waller & Andrew Goodwin's London Value Investor Conference Presentation

Waller and Goodwin usefully suggested that disruption happens in four different way. Firstly, technology gets investors excited sometimes creating bubbles around new technologies. Investors over react and drive the price of the disrupted stocks too low. The market drives disrupted stocks to valuations that make no sense unless the technological change is very significant, swift and permanent.

A second area of disruption is caused by product cycles. It can affect all industries, but it is particularly prevalent in the pharma sector. The market gets excited about new drugs and over-pessimistic about those that are facing patent cliffs.

A third type is caused by new competition. The market tends to favour the disruptor and focuses its ire on the incumbent. The fourth area of disruption is caused by economic cycles, both large scale macro-economic cycles and smaller scale capital cycles that some sectors are particularly prone too.  As contrarian investors they try to take advantage of these cycles to buy companies when they are cheap.


Long Kansai Electric (TYO: 9503):  In March 2011, Japan suffered a large earthquake that led to the Fukushima nuclear disaster. Prior to Fukushima there were 54 reactors in service providing 30% of Japan’s energy needs. Afterwards all the reactors were taken off line.  Kansai Electric was hit particularly hard because half of its energy production came from nuclear.  Investors exited the stock.

Oldfield Partners started to buy in March 2015 at around 1100 Yen per share. At the time the Japanese market analysts were completely bearish and none of them thought the return to service of the nuclear reactors was likely. Market analysts in Japan are risk averse as that is the only way they have survived the long-term bear market. The Oldfield team became convinced that Japan could not satisfy its energy demands without the nuclear reactors. Despite some local resistance, Japan is slowly bringing its nuclear reactors back online. Kansai now have 4working reactors reducing their reliance on thermal and reducing fuel costs.

Kansai shares are up 60% from Oldfield’s buy price. They feel shares still offer good value as Kansai think that eventually 7 of its 11 reactors will come back on line. Operating profits could increase a further 50% from here.Japanese energy markets are deregulated. Kansai is the lowest cost producer and could enter new regions to grow its market share.


Long E.ON (ETR: EOAN):  The market has been worried that technological and regulatory changes will disrupt E.ON. Since 2010 Germany has been trying to shift from thermal to renewables. The Fukushima disaster led Germany to do a U-turn on its nuclear policy and to set a target for closing its nuclear power stations by 2022. An additional negative for potential E.ON investors was that solar energy was being heavily subsidised.

Oldfield Partners started buying E.ON in Sept 2015 and has an average price of 7.24 euro.  The nuclear operations are in run-off. In terms of returns 65% now comes from the regulated business. E.ON has completed its de-gearing.

In 2018 E.ON announced an asset swap with its big competitor RWE. RWE is going to take E.ON’s renewables and E.ON will get RWE’s regulated business. The asset life of the renewables is probably 25 years whilst the regulated assets have an asset life of around 100 years. That is a good swap and E.ON will have 80% regulated assets. The synergies of the combined business are significant at 600-800m euros. There is a 5% dividend that can grow.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Ben Preston Long Peabody Energy: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Ben Preston of Orbis who pitched a long of Peabody Energy (BTU).


Ben Preston's London Value Investor Conference Presentation

Peabody is the world’s largest publicly listed provider of coal. Coal mining had a particularly tough time in 2015/6. At one point almost half of US coal was being produced by companies that had filed for bankruptcy.  Peabody produces 200m tons of coal per year mostly in the US which it mostly sells to power stations. A lower volume of coal is produced in Australia but that is where Peabody makes most of its money from export markets, particularly China.

After the commodity markets peaked in 2011 Peabody found itself with too much debt. It filed for bankruptcy in 2016 and spent a year sorting itself out. The shareholders were wiped out. The re-incarnation has lower capex and debt interest payments. Whilst production is down, free cash flow is up. As Peabody are not opening new mines the money is flowing back to shareholders. There is a very high FCF yield at 25% on a trailing basis.

Since the commodity crash coal production has declined. In addition, China has been trying to tackle its pollution problems by moving away from coal. This has been good for the environment but does not keep Chinese people warm. China relaxed the new clean air policy in 2016. There is a conflict between the E and the S of ESG (environment, social, governance). Tackling air pollution has led to more demand for high quality coal because it is more efficient and pollutes less. Peabody’s coal is high quality.

Peabody is cheap because investors are worried the price of coal will fall back again. Mr Market is convinced it will but if it doesn’t Peabody will do well.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Mark Asquith Long Pacific Textiles, Sunny Friend, Cia Hering: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Mark Asquith of Somerset Capital Management who pitched three longs: Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), and Cia Hering (BVMF:HGTX3).


Mark Asquith's London Value Investor Conference Presentation

Mark Asquith is the lead manager of the Global Emerging Market Small Cap and EM Small Cap Strategies.

Long: Pacific Textiles (HKG: 1382):  It’s been a savage environment for textile companies. Competition between brands and from Amazon has depressed prices.  Environmental regulations create barriers to entry as few can afford to meet the benchmarks for water, air and heat treatment. Also, there are barriers to entry that are driven by customer expectations: lead time 7-45 days, quality, ESG. Few can meet these. The number of textile enterprises has reduced dramatically in the last 10 years.The market is concerned about growth, tariffs and a stronger Renminbi.  Pacific Textiles is trading at PE 10x, ROE 30%, FCF 10%.

Long: Sunny Friend (TPE: 8341):  Sunny Friend is a waste management company in Taiwan. They have incineration and liquidation waste disposal facilities. It’s a compounder rather than a deep value stock.  In Taiwan, they have 35% market share in medical and 16% in industrial waste.  They have barriers to entry because no one wants a waste management plant in their back yard (NIMBYism). There are also customer switching cost and permits. These protect their Taiwanese business but make it difficult for them to break into the Chinese market. China is a potential growth market (currently <20% of sales).  Sunny friend is not classically cheap, but it does have good free cash flow yield and generation.

Long Cia Hering (BVMF: HGTX3):  Cia Hering is a Brazilian clothing brands company. It has been having a hard time including losing control of its point of sale. The shares fell 80% from 2012-2015.  Somerset bought their stake in 2015/16 when new management replaced the old. The new management have rebranded the product range and invested in point of sale.  Many of their competitors have gone under. Consumer confidence is picking back up.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Nick Kirrage Long Standard Chartered: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Nick Kirrage of Schroders who pitched a long of Standard Chartered (LON: STAN).


Nick Kirrage's London Value Investor Conference Presentation

Deep value has had ten of the worst years of under-performance verses growth on record. Most investors are invested in franchise stocks not deep value. They are over-exposed to growth.

Long: Standard Chartered (LON: STAN):  Nick Kirrage’s partner, Kevin Murphy, pitched Standard Chartered at last year’s conference. Since then it’s down 11%. They’ve liked banking for the last five years. They’ve been early and have been adding to existing banking positions. STAN’s valuation reflects a fear of emerging markets. It’s a unique franchise in emerging markets and is one of Kirrage’s and Murphy’s largest positions.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Alex Wright Long Pearson & Bunzl: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Alex Wright of Fidelity Special Situations Fund who pitched two longs: Pearson (LON:PSON) and Bunzl (LON:BNZL)


Alex Wright's London Value Investor Conference Presentation

Long: Pearson (LON:PSON)  Wright said that Pearson was the most exciting stock in his portfolio. His Special Situations Fund purchased shares in 2017, the shares are up around 35% since then. The stock performed poorly between 2015 and 2017 losing about 60% of its value. Analysts are negative on Pearson with 3 buys and 9 sells, the most sell recommendations in the FTSE 100. Low unemployment in the US has pushed college enrollments down. Also, Amazon and marketplace sellers have challenged text book publishers by providing a more effective platform for re-selling second-hand text books.

Pearson is a complex business that primarily sells text books and online resources for education. It is primarily US focused. The company is misunderstood by the market. Education is a structural growth area. Pearson has 40% market share in their core market. Education is changing from being textbook/ analogue in delivery to being online/ digital. The cost of delivering digital education is preventing competition from other players and giving Pearson a competitive advantage. They are twice the size of their nearest competitor.  Digital will go from 50% to 80%. The digital model is access not ownership, more like Spotify or Netflix. It will stop competition from course material resellers. Over time digital will reduce the cost base and create a simpler business - £300m cost savings by 2020. Pearson could become one of the highest quality companies in the FTSE 100.

Long: Bunzl (LON: BNZL):  Bunzl is a global distributor and outsourcer making things like plastic forks, coffee cups, and cleaning products. The US is their major market.  EV/ sales has fallen from 0.85 to 0.7 since 2015. Investors fear that Bunzl’s business will get disrupted by Amazon. Amazon does sell most of the products that Bunzl distributes.  Amazon won’t eat Bunzl’s lunch. Bunzl does not compete primarily on price. Their customers use them because they are a one stop shop. They supply Walmart stores in the US with till rolls, cleaning products and light bulbs. Walmart is their largest customer. Costa is another big customer who Bunzl supply with coffee cups. They are better than Amazon at delivering reliably on time. They offer their customers bespoke solutions that Amazon don’t. 

Investors have also been worried about Bunzl’s reliance on single use plastics, the negative environmental impact and the potential for regulation. Bunzl is beginning to address this issue.  Where they have the use of recycled products and wood products have led to higher profit margins.  Bunzl can grow by acquisition. Wright noted that analysts on the sell side find it hard to model businesses that grow by acquisition.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Stephen Mitchell & Bryan Pilsworth Long Transcontinental & Walgreens Boots Alliance: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Stephen Mitchell and Bryan Pilsworth of Foyston, Gordon & Payne who pitched two longs: Transcontinental (TSE:TCL) and Walgreens Boots Alliance (NASDAQ:WBA).


Stephen Mitchell & Bryan Pilsworth's London Value Investor Conference Presentation

Long Transcontinental (TSE:TCL):  It's Canada’s largest printing company and an emerging N.A packager. It’s a high-quality company that is not broken but it is going through a change process.  The company is well lead by Francois Olivier (President & CEO) and Isabelle Marcoux (Chair). They have been astute at getting out of declining businesses quickly, for example, they exited the textbook market. The remainder of the printing business achieves high margins.

TCL is better and cheaper than peers. For example, it is more profitable than its competitor, Quad.  Unlike printing, packaging is a growth market. The US market is worth $25bn and is growing 2-3%per year. Transcontinental’s printing know-how is transferable to packaging. TCL entered the packaging market in 2014 and by 2017 it had acquired 7 plants. In 2018 it acquired a further 21 new plants with a US focus from Coveris America.  TCL are now No. 7 in packaging in the US. They are No. 2 in cheese packaging.P/E 11.5x (2019); EPS $2.4; EV/EBITDA 7x (2019)


Long: Walgreen Boots Alliance (NASDAQ: WBA):  The shares are cheap because it’s rumoured that Amazon is going to enter the pharmacy business.  70% of prescriptions are recurring. 85% of prescriptions are generic.  People with recurring prescriptions may chose Amazon home delivery. Pharmacies may lose foot traffic which will impact brick and mortar store sales.

Walgreens is the largest retail pharmacy, health and daily living destination across the US and Europe. Market Cap $63bn. Global sales of $118bn, over 13,200 stores in 11 countries. Over the last 10 years, sales and EPS growth of 8%. Average ROE of 16%.  Two reasons why pharmacy/ store networks have a moat against Amazon.  1. Convenience: 70% of seniors chose pharmacy over mail order due to convenience.  2. Compliance: Managed Care Operators (MCOs) need pharmacies to ensure proper patient drug usage.  So far chains have taken share at the expense of mail order and independents.

High margin beauty products provide an opportunity to improve front-of-store sales and expand margins. Customers like in-store demonstrations before purchase. On-line sales are only 8% but growing.  Walgreens already has an omni-channel offering - a multi-channel sales approach – and a mobile offering. The mobile channel has 88m users in the US. Half of digital sales come through mobile. 50% of users use an app in-store. 20% of users are 55 years or older.  PE 10.3x CY 2018; ROE 19.8% CY 2018; Net debt / EBITDA 1.5x; dividend yield 2.5%.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Adrian Warner Long HCA Healthcare: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Adrian Warner of Avenir Capital who pitched long HCA Healthcare (NYSE:HCA).


Adrian Warner's London Value Investor Conference Presentation

Prior to founding Avenir Capital in 2011 Adrian Warner worked in private equity.

Long: HCA Healthcare (NYSE: HCA):  HCA is a private hospital provider in the US with 179 hospitals, 38K staff, 47K beds. It has a strong  financial track record of growing revenue and margin stability. Margins have averaged 19% for over  20 years. It has leveraged 5% annual revenue growth into 15% annual EPS growth.

The bulk of the industry is not-for-profit hospitals or state/ local govt owned. Only 20% of hospital are for-profit in the US. In terms of inpatient costs per day for-profit hospitals have 24% lower costs, than not-for-profit. HCA is the dominant hospital provider in the for-profit sector with x2 the market share of the nearest competitor, Tenet Healthcare (THC). HCA’s scale and geographic focus provide a competitive advantage. It focuses on large urban markets which allows a greater focus on high-end subscribers. It has also focused on the sunbelt states which have large elderly populations.

Its industry leading capex allows it to attract the best physician groups. Its competitive advantage is demonstrated by long-term margin superiority, 19% Vs 10% for the industry average.  The hospital sector is expected to grow at around 6% per year. Even though there is a lot of regulatory noise, the Republicans failed attempts to pass health care reform in 2017 - with a majority in both houses - shows that radical change in the sector is unlikely.

HCA has grown through acquisition. The CEO believes the pipeline for potential acquisitions is good. Weak competitors provide M&A opportunities. HCA has bought back 20% of its shares since 2013.  EBITDA 7.7x; PE 10.7x; FCF yield 5.5%.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Stephen Anness Long National Oilwell Varco: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Stephen Anness of Invesco Perpetual who pitched a long of National Oilwell Varco (NYSE:NOV).


Stephen Anness' London Value Investor Conference Presentation

Oil stocks have sold off because of the fear of the challenge from electric vehicles and new supply from US shale.  Going back to the 1950s, Energy stocks are trading at a 40% discount to their average price to book value.  The death of oil has been exaggerated. Battery technology has been slow to develop and is not about to replace oil. Batteries are not good at storing energy compared to oil. Petrol is a 50x better store of energy than the best lithium-ion batteries.

Cobalt is a critical component for the cathode. Current production of 130Kt per year is sufficient for only 5.4m vehicles. If all the potential cobalt mines were opened that would allow only 12m EV vehicles in 5 years’ time.  The move to battery power creates serious security issues because 60% of the world’s supply of cobalt is located in one country, The Democratic Republic of Congo.  Because of the growing demand for cars generally, even if a quarter of those were EVs by 2025 – a high estimate - there would still be demand for a growth in ICE vehicles. ICE car sales are therefore likely to rise in the coming years.  Only 20% of oil demand comes from cars anyway. Trucks 24%; other transport (aircraft, ships) 12%; Industry 28%; power 5%.

Oil consumption is still rising whilst net reserves are falling. Increased demand will come from China, Latin America, India. Last year was the worst year for conventional oil discoveries since 1940. In the recent downturn the industry has reduced capex by about $700bn.

National Oilwell Varco is a US based company. Stephen Anness’s fund started purchasing NOV shares in late 2016. The shares trade at a similar price today.  It would be difficult to build an oil rig without using NOV products. It has 70% market share in some areas.  NOV has a strong balance sheet. They have been free cash flow positive for 14 of the last 15 years.  FCF averaged 11% per year over 15 years.  NOV is seen by analysts as an off-shore business. NOV’s off-shore revenues have collapsed from $21bn to $7bn and they have made some on-shore acquisitions. Today, two-thirds of its revenues come from on-shore. The change has not been recognised by analysts.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Alvaro Guzman & Fernando Bernad Long Buenaventura: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Alvaro Guzman and Fernando Bernad of Az-Valor Asset Management who pitched a long of Buenaventura (NYSE:BVN).


Alvaro Guzman & Fernando Bernad's London Value Investor Conference Presentation

Alvaro Guzman was Francisco Parames' partner at Bestinver 2003-2014.

Long: Buenaventura (NYSE: BVN)  Mining is not a good business. ROCE is low across the cycle.  There are potentially some negative stock specific issues: Buenaventura has all its assets in Peru. It is family owned. The stock is up x4 already.  But if you are going to invest in mining copper is not a bad place to be. Population growth, urbanisation, industrialisation and growth in disposable income will lead to more demand.

Copper use in China is only 30KG/ capita Vs 100KG/ capital in the West. There is a long way to go.  Copper production is getting structurally harder. On a global basis, BVN has the 3rd largest copper mine and the 4th largest reserves. It’s a low-cost mine, open pit and highly mechanised.  A 20% stake in the Cerro Verde mine is worth the entire EV of Buenaventura. You get Buenaventura’s gold assets for free.

Guzman disagrees with Buffett’s negative view on gold as an asset for investment. Owning gold is a good insurance policy at a time when governments and institutions are trying to drive inflation higher.BVN’s management team is unusually good in the mining industry. No capital increases; they hate debt; they own more shares than anybody else; they have successfully negotiated a period of hyperinflation; they are good capital allocators.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.


Jonathan Boyar's London Value Investor Conference Presentation 2018: AXTA, GOLF, MSGN, BEN, HHC

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Jonathan Boyar of Boyar Value Group who presented five long ideas: Axalta Coating Systems (AXTA), Acushnet Holdings (GOLF), Madison Square Garden Networks (MSGN), Franklin Resources (BEN), and Howard Hughes (HHC).


Jonathan Boyar's London Value Investor Conference Presentation

Long: Axalta Coating Systems (AXTA):  Axalta is the world's 5th largest coatings company. Berkshire Hathaway own a large stake. It’s the no. 1 player in refinish (re-painting autos after accidents). Refinish accounts for 50% of their EBITDA and is the crown jewel. They have turned down two takeover offers. The company appears to be for sale, but they are waiting for the right offer. They are buying back shares. They are currently trading ats ubstantially less than an acquirer would pay at EBITDA 10x 2019. This type of company usually gets bought out for 13x to 15x.

Long: Acushnet Holdings (NYSE: GOLF) Acushnet designs, makes and sells golf products. It is a great consumer franchise. It’s not in a major index. It has minimal sell-side coverage. It generates 40% of revenues from consumer products. It’s a potential takeover target. Nike has left the golf product business.

Long: Madison Square Garden Networks (MSGN):  It’s a broadcasting company that was technically the parent from the spin out of Madison Square Garden (MSG). At the time of the spin-out it was carrying a lot of debt (5x levered). They have now reduced that to 3x. Once Disney, Fox and Comcast conclude their M&A activity one of them might be interested in bidding for Madison Square Garden Networks.  The market believes that cable operators might drop the channel. This is unlikely because sports are too important to cable subscribers and advertisers. The shares are cheap at FCF 7x.

Long: Franklin Resources (NYSE: BEN):  Franklin is an Investment management business. They are buying back a lot of stock. The family owns 40% of the company. If the shares get cheap enough the family might buy it outright.

Long: Howard Hughes Corporation (NYSE: HHC).  The real estate is difficult to value and the company is largely ignored by most investors. It is not in a major index. The CEO recently purchased a warrant for $50m that will expire worthless if the stock does not go up.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.