SALT Conference Best Ideas Panel: Chanos, Bass, Burbank, Cooperman, Karsch

At the Skybridge Alternatives (SALT) Conference in Las Vegas, the best ideas panel featured top hedge fund managers giving their top stock picks.  Here's a summary:


SALT Conference Best Ideas Panel: Chanos, Bass, Burbank, Cooperman, Karsch

Jim Chanos (Kynikos Associates):  Short oil integrators.  Specifically, short Royal Dutch Shell (RDS), doesn't like the merger with BG.  Short Chevron (CVX) as well due to their liquefied natural gas (LNG) challenges.  He also summed up Brazil's Petrobras (PBR) by saying they're "lying, cheating and stealing."  Also check out Chanos' SALT interview we posted earlier.


Kyle Bass (Hayman Capita): Long Perrigo (PRGO).  Doesn't think they get bought out by Mylan, but thinks someone else acquires them.  "We're short enough pharma."  Bass' separate new fund has been challenging pharma patents and says the industry is ridiculous as prices of drugs have spiraled out of control.  He gave the example of Mylan's (MYL) epipen drug specifically.  Says 13% of the company's revenue comes from this drug (which came off patent back in the 1950's).


John Burbank (Passport Capital): Long NCB AB, a Saudi Arabian banking play.  "The banking giant you've never heard of in the country you're too scared to invest in."  He says the vast majority of deposits don't pay interest due to Sharia Law so they'll be in a good position when rates rise.  Harps on the fact that outsiders are going to be able to invest in Saudi and by 2017 90% of investors will own some part.  "All the risks are already known in Saudi."  This isn't a new theme from him as Burbank has pitched Saudi investments in recent years.


Lee Cooperman (Omega Advisors): As he has been for a while now, he again advised reducing fixed income exposure.  He also said to go short on any rally if you're adventurous. His stock picks were the same as his Sohn Conference picks: ACT, AER, C, DOW, GM, GOOGL, PCLN.


Michael Karsch (Hunter Peak Capital): Long NOS SGPS, a Portuguese cable/wireless provider.  Biggest cable play and #3 wireless provider in the country, a hidden gem.


For more from the SALT conference, check out Dan Loeb's talk.

Glenview Capital Q4 Letter on McDonald's, T-Mobile, Auto Dealers & More

Larry Robbins' hedge fund firm, Glenview Capital, is out with its fourth quarter letter to investors. Glenview's Opportunity Fund returned 25.25% net in 2014. 

In the letter, Robbins outlines his thesis on auto dealers (Group 1 Automotive ~ GPI), Flextronics (FLEX), McDonald's (MCD), PHH (PHH), T-Mobile (TMUS), and pharma roll-up plays like Actavis (ACT) and Endo (ENDP).


Glenview's Q4 Letter Takeaways

On McDonald's (MCD):  This is a new stake for Glenview and they feel there's basically 5 ways to make a 'happy meal' to help the company: operational turnaround, SGA rationalization, refranchising, additional leverage, and real estate.  They feel this could trade as high as $169 (currently trades around $99.)

On MCD, Robbins writes, "Fundamentally, McDonald’s has a number of characteristics that we look for in good businesses. Approximately 75% of EBITDA is driven by royalties and rent, which is a secure, stable earnings stream free of operating leverage. Food, in general, is a defensive end market, and McDonald’s positioning at the value end of the spectrum provides further insulation from material cyclicality as evidenced by positive same store sales in the U.S. and positive consolidated EPS growth in every year throughout the last recession."


On T-Mobile (TMUS): Glenview has owned this company since 2013 but bought more shares in December 2014.  They feel the company has a few positive things going for it to continue its growth: aggressively going after new subscribers, deploying spectrum to address new customers, and seeing positive FCF generation this year. 

They also like that the company is a "key strategic asset" and that their parent company Deutsche Telekom is looking to sell.  Glenview feels TMUS could either: try to tie-up with Dish Network and their spectrum, seek a sale to a foreign buyer, or again try to merge with Sprint once a new political administration takes office in 2016.


Embedded below is Glenview's Q4 letter:



For more from this hedge fund, yesterday we posted up some more of Glenview's recent portfolio activity.

Notes From Invest For Kids Chicago 2014: Ackman, Zell, Robbins & More

The sixth annual Invest For Kids Chicago just took place and featured hedge fund managers sharing their latest investment ideas to benefit local children's charities (100% of the money raised goes directly to the charities).  Below are links to notes from each speaker's presentation.  Enjoy!


Invest For Kids Chicago 2014 Notes

- Fireside Chat with Bill Ackman (Pershing Square)

- Larry Robbins (Glenview Capital): 4 long ideas

- Sam Zell's Fireside Chat 

- Mason Hawkins (Southeastern Asset Management): long Level 3 Communications 

- Wally Weitz (Weitz Investment Management): long Liberty Media

- Steve Kuhn (Pine River Capital): On Japan

- Nehal Chopra (Tiger Ratan Capital): long Actavis and Charter Communications

- Jonathan Kolatch (Redwood Capital): Puerto Rico Power Authority

- Mike Wilkins (Kingsford Capital): On Short Selling

- Emerging Managers: Nancy Prial (Essex) long iCAD

- Emerging Managers: Tim Hurd (Blue Spruce) long BlackRock 

Nehal Chopra Long Actavis & Charter Communications: Invest For Kids Chicago

We're posting up notes from Invest For Kids Chicago 2014.  Next up is Nehal Chopra of Tiger Ratan Capital.  She pitched two ideas: Actavis (ACT) and Charter Communications (CHTR).


Nehal Chopra's Invest For Kids Chicago Presentation

•    Started in FY09. Worked at Balyasny beforehand. Was seeded by Julian Robertson/Tiger.
•    Best ideas follow similar pattern: great management teams, high quality businesses. The power of compounding. Secret sauce is operational improvement and capital deployment.

Idea: Actavis (ACT)

•    Owned Forest Labs beforehand.
•    Brent Saunders joined from Forest Labs. Previous CEO of Bausch and Lomb. Brent Saunders turned it around and sold it.
•    At Forest over six months Brent executed a cost cutting program ($500MM), accretive transactions and then sold it for a 25% premium to Actavis. Made 100% return for shareholders. Now runs Actavis.
•    Rolled all of his stock ($100MM) into Actavis.
•    Chairman of Actavis (former CEO) not a slouch as well. 7.3x return.
•    Actavis is a diversified pharma company. Scale of large pharma with cost culture of a generics co. No looming patent cliff.
•    New breed of specialty pharma. Strong platform and distribution. Strong balance sheet strength and FCF generation. Benefits from a low tax rate.
•    Thesis is simple – strongly positioned across all markets which should drive substantial revenue growth. Cost cutting opportunities and debt to EBITDA at 3.5x allows for optionality. Lots of opportunities to deploy FCF into M&A and buybacks.
•    Everytime they buy a product, can drop it into the sales force bag, leads to higher margins.
•    $20+ earnings in FY16/FY17. Number could be closer to 22 to 23. 15x multiple leads to $350 plus target.
•    Actavis rumored to be in the running for Allergan or sold to Pfizer.


Idea: Charter Communications (CHTR)

•    Owned by Paul Allen, balance sheet/ op issues declared bankruptcy. Emerged in 09. Tom Rutledge joined as CEO. Excellent operator.
•    What is Charter today? Two man band, Operator: Tom Rutledge and savvy deal making of John Malone.
•    Malone owns 25.5% through Liberty Media (Liberty Broadband).
•    Rutledge has led CHTR to increase rev per customer, digital penetration, Video ARPU and Products per User. Poured lots of cash into maintenance capex to upgrade/fix network which wasn’t maintained in bankruptcy.
•    April entered into a series of transactions with Comcast. Bought former TWC assets including 1.5MM subs for $7.7B, swapping 1.7MM subs with Comcast, and will also managed Greatland (33% stake) with 2.5MM subs. Receives a mgmt fee for Greatland.
•    Charter is going from 4MM subs to 8MM subs. Many which were undermanaged, allowing Tom Rutledge to manage.
•    Bull case is operational improvements, cash flow generation and capital deployment (buyback/M&A). Levered equity returns and favorable tax position.
•    EBITDA going from $3.5MM in EBITDFA/ $8 - $9MM in FCF and 4.4x net debt, to $5.5B in EBITDA, $18 - $22 in FCF per share, net debt at 4.5x and trades at an implied 7x FCF.
•    Risks are leverage, Google fiber, timing uncertain.


Be sure to check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

Larry Robbins' Presentation at Capitalize For Kids Sohn Canada

We're posting up notes from the Capitalize For Kids Sohn Canada conference that just took place.  Next up is Larry Robbins of Glenview Capital who pitched a few stock ideas.


Larry Robbins' Sohn Canada Presentation

Looks for companies with excess cash on the balance sheet (cost of cash capital is low), debt capacity (companies with tangible assets and good credit history to leverage up), incremental debt capacity (under levered relative to industry and can leverage up without jeopardizing current credit rating) and finally defensive growth which protects the investor if company takes on leverage.

Pitched LONG on Thermo Fisher Scientific (TMO), Danaher Corporation (DHR), Endo International PLC (ENDP), and Actavis (ACT), which all fall under the criteria mentioned above.

Be sure to check out the rest of the presentations from Capitalize For Kids Sohn Canada here.

Lee Cooperman's Value Investing Congress Presentation: Are Equities Still the Best House in the Neighborhood?

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Lee Cooperman of Omega Advisors who presented: Are equities still the best house in the financial asset neighborhood?


Lee Cooperman's Value Investing Congress Presentation

• Market is fully / fairly valued. There is time and price left in us equity bull market and a respectable  S&P return expected in 12-18 months. Repeated the caveat that a geopolitical event could upend this prediction

• “Bear markets are born in despair, grow on skepticism, mature on optimism, die on euphoria.” ‘08/’09 was deep pessimism, have seen skepticism lately but we are near the end of that  now. Sees few signs of euphoria

• Nearly all us fixed income securities w/ exception of structured credit are uninteresting and   unattractive. This includes treasuries, investment grade corporates, HY bonds and soverign debt

• Equity markets in Europe and Japan should deliver respectable returns over coming year, could   outperform us as they are further behind in business cycle. Japanese valuations are attractive   because they have a comparable dividend yield but sell at 13.6x P/E vs. 16.8x P/E in US

• Dollar should be a strong currency over coming year

• Looking at average cycles:
o Bear market of ‘09 was 2x the average bear market, down -57% vs. -26% average. Also lasted 17 months vs. 13 month average
o Recession duration also prolonged and deeper than average. The average recession is characterized by -2% GDP and lasts 10 months.  In the '09 recession, GDP declined -4.3% and lasted 18 months
o Average recovery lasts 60 months and we are on slight overtime at 63 months today. 
o Market peaks about 7 months prior to economic peak. Thinks we don't have recession in 2015 so doesn't see a market peak today
o Cooperman thinks this recovery has the potential to exceed the average because so many companies were operating below potential

• Reason for caution:
o Seeing a lot of capitulation from the permabears, now hearing 3,000 S&P predictions from holdouts.  People waking up and getting bullish now are making a mistake
o Getting a little nervous that so many people who couldn’t see the positive outlook a few years ago now see such good opportunity
o Reiterated geopolitical risk multiple times
o Very concerned about income disparity in the economy. 75mm youth around the world are unemployed.  In the '40s an average factory worker made 1/30th of a CEO, now 1/900th
o Next crisis will be in public sector fundings. US government has $17tn debt with an average maturity < 4 years.  Meanwhile corporates have high liquidity and the banking sector is so highly regulated these days that a crisis probably won't come from them
o Another risk: recession/deflation in Eurozone or US
o Stocks also aren't really cheap – showed Buffett’s favorite stock valuation chart

• Regarding rising rates:  o If Fed doesn't raise rates, we have a problem in the stock market. If cash belongs at 0% and govt belongs at 4%, you shouldn't be making 15% in the stock market.  Rising rates should be indicative of an improving economy
o 1958 was the year of yield reversal when equities started yielding less in dividend yield compared to treasuries.  Now over 25% of S&P 500 non-financials yield more than 10yr note
o Relative to alternatives, equities still better. Fixed incomes just not attractive


Longs:  

• GARP: Actavis (ACT), Citigroup (C), Thermo Fisher (TMO)
• Income growth: Atlas (ATLS), Gaming & Leisure Properties (GLPI), KKR (KKR), Nordic American Offshore (NAO) 
• Asset restructuring: QEP Resources (QEP), Supervalu (SVU)
• High risk/high return: Altisource Portfolio Solutions (ASPS), Louis XIII (577 Hk), Monitise (MONLLN), Sandridge Energy (SD).

Cooperman's pick of ASPS was analyzed in the May issue of our Hedge Fund Wisdom newsletter if you want to play catch up on the name quickly.



Be sure to check out the rest of the Value Investing Congress presentations here.

Lee Cooperman's Favorite Stock Picks at Delivering Alpha Conference

At CNBC and Institutional Investor's Delivering Alpha conference today, Omega Advisors' Lee Cooperman shared his favorite stock picks.

He likes Actavis (ACT), a tax inversion play, Citigroup (C), a good buy he says because the economy is healing with loan demand and one that could narrow the discount to book value over time, as well as Gaming and Leisure Properties (GLPI) and Nordic American Offshore (NAO).

Other plays he likes include: QEP Resources (QEP), Supervalu (SVU), Louis XIII (577 HK), and Monitise (MONI.LN), the mobile payments play he's pitched before.

Lastly, he also mentioned Thermo Fisher Scientific (TMO), KKR (KKR) and Sandridge Energy (SD).

Cooperman also noted that the last time the Fed raised rates was in 2006 and around 25% of fund managers weren't really around to experience that.

He also joked that the last time he was bearish was during his Bar Mitzvah.

One quote that stood out from him was that, "if you buy something that's out of favor, things seem to happen to make you right."


Lee Cooperman will be presenting new investment ideas at the upcoming Value Investing Congress in a few months and readers can receive a discount to the event by registering here and using discount code: MARKETFOLLY

What We're Reading ~ Analytical Links 3/5/14

The 1-hour China Book: Peking University professors explain China business [Jeff Towson]

Investing's biggest irony: everyone thinks they're a contrarian [Morgan Housel]

Summary of Warren Buffett's long CNBC appearance this week [Brooklyn Investor]

Buffett tells investors to get real about EBITDA [Herb Greenberg]

A new form of shareholder activism gains momentum [Dealbook]

A look at Platform Specialty Products [Seeking Alpha]

The decline of department store sales [USNews]

VRX, ENDP, ACT: Will pharmaceutical roll-ups end badly? [Value Institute]

House with a modified loan is symbol of servicers' tug of war with investors [Dealbook]

You won't have broadband competition without regulation [Reuters]

On Carlos Slim's challenge to his telecom dominance [Economist]

America should make life easier, not harder, for activist investors [Economist]

Digital habits: Nielsen profiles the US consumer [TNooz]

The future of the news business [Marc Andreessen]

How and why to keep a 'commonplace book' [RyanHoliday]