Graham & Doddsville New Issue: Polen Capital, Glenn Hubbard & Joseph Stiglitz, DG Capital

The winter issue of the Graham & Doddsville newsletter is out.  Columbia Business School's publication this time around interviews Glenn Hubbard and Joseph Stiglitz, as well as Damon Ficklin and Jeff Mueller of Polen Capital, and finishes up with DG Capital Management's Dov Gertzulin.

The newsletter also features student investment pitches from the 2018 Women in Investing conference: long Nordstrom (JWN) and a pitch from the 2018 CSIMA stock pitch challenge: long Lions Gate Entertainment (LGF.A).

Polen Capital talks about their positions in Alibaba (BABA), Adobe (ADBE), Align Technology (ALGN), and Starbucks (SBUX).

Embedded below is the Winter 2018 issue of Graham & Doddsville from Columbia Business School:



You can download a .pdf copy here.

Aaron Cowen Long QSR & Adobe: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Aaron Cowen of Suvretta Capital who pitched two long ideas: Restaurant Brands (QSR) and Adobe (ADBE)


Aaron Cowen's Presentation at Capitalize For Kids 2016

•    LONG Restaurant Brands (QSR). Franchiser of Burger King and Tim Hortons

•    Believes it can be a $75 stock (currently price of $44). Business model is a franchiser business model, it doesn’t own any stores.

•    3G is the management team behind this and has one of the best track records. Tim Hortons integration has been going very strong.

•    Believes it can do $3.00/sh in FCF going forward. Believes people are missing this because of all the merger accounting.

•    No real e-commerce threat at this point and believes e-commerce is a positive for the business.

•    Almost all of 3G’s platforms have compounded capital at very high rates.

•    They have dropped operating expenses by a significant amount at Tim Hortons (lowered costs by 60%).

•    Believes the company ramps up acquisition machine every 2-3 years and is likely due for one now. Targets could potentially be YUM, Dairy Queen, Popeyes, among others. Believes this is a free call option on management doing something smart.



•    LONG Adobe (ADBE). Largest SaaS business in the world. $50 billion market cap.

•    Adobe services two functions: Creative Cloud – used by 13 million users to create webpages and is growing 15-20% per year and essentially have a monopoly in this product. Second, Adobe does digital marketing. This helps companies place adds on website and measure ROI on marketing effects.

•    It went through a transformation to switch to SaaS from one-time sales in 2013 and believes the street still misunderstands this. Margins were impacted as all the upfront costs associated with SaaS business model. Believes margins will be mid-40s (base case assumption) in 2018 after the company completes its transition.

•    Assuming revenue grows at 20% plus margin expansion deserves a high multiple. Expecting EPS of $7/sh in 2018. Target price between $170-180 in base case scenario.


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

ValueAct Capital Trims Adobe Systems Stake Again

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC regarding its position in Adobe Systems (ADBE).  Per the filing, ValueAct trimmed its ADBE position on July 14th-16th.

In total, ValueAct sold 1.693 million shares at prices of $82.11, $82.06, and $82.45.  After these sales, ValueAct still owns just over 14 million shares of Adobe. 

This is the second time ValueAct has trimmed its Adobe stake in recent months.  In fact, they've been cutting their exposure to the name gradually since 2013 when they owned as much as 25 million shares.

Per Google Finance, Adobe Systems is "a software company. The Company offers products and services for professionals, marketers, application developers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with content. Adobe markets and licenses its products and services through app stores and its Website www.adobe.com. The Company's operates in three segments: Digital Marketing, Digital Media, and Print and Publishing. In Digital Media, the Company is engaged in providing tools, services and solutions that enable to create, publish and promote their content. In Digital Marketing, the Company is engaged in providing solutions and services for creating, managing, executing, measuring and optimizing digital advertising and marketing campaigns. Adobe's Print and Publishing segment addresses various market opportunities, including eLearning solutions, technical document publishing, Web application development and high-end printing.."

You can view additional recent portfolio activity from ValueAct here.

ValueAct Capital Supports Willis Group Merger; Slightly Trims Adobe Systems Stake

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC concerning Adobe Systems (ADBE) and a 13D regarding Willis Group (WSH).

Supports Willis Group Merger

Per the amended 13D filing, ValueAct continues to own 10.3% of WSH with over 18.4 million shares.  This is the same exposure they had at the end of Q1.

The company just entered into a merger agreement with Towers Watson (TW) and ValueAct has supported the transaction and will vote in favor of it.

ValueAct Slightly Trims Adobe Systems Stake

Per the Form 4, ValueAct trimmed its ADBE stake by selling 307,000 shares spread out over June 26th, 29th, and 30th.  They sold at prices of $83.55, $82.02, and $82.08.  ADBE currently trades around $81.  After these small sales, ValueAct still owns over 15.7 million shares of Adobe.

For more from this firm, we highlighted how they recently increased their Agrium stake as well.

ValueAct Capital Trims Adobe Systems Stake

Jeff Ubben's activist hedge fund firm ValueAct Capital has filed a Form 4 with the SEC regarding their stake in Adobe Systems (ADBE).

Per the filing, they've sold over 5 million shares of ADBE since the end of the third quarter.  These sales came at prices of $75.02, $74.72, and $74.57 on December 18th, 19th, and 22nd respectively.

After these recent sales, they're left with 16,700,000 shares.

Per Google Finance, Adobe Systems is "a diversified software company. The Company offers a line of software and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring and engaging with content and experiences across multiple operating systems, devices and media."


For more from this manager, be sure to check out Ubben's presentation from the Sohn Conference San Francisco.

ValueAct Capital Trims Adobe Systems Position

Jeff Ubben's activist hedge fund ValueAct Capital filed a Form 4 with the SEC regarding its position in Adobe Systems (ADBE).  Per the filing, ValueAct sold 3,466,894 shares at prices of $52.52, $53.01, and $53.22 on October 18th, 21st, and 22nd respectively. 

After these transactions, ValueAct is still left holding a sizable stake of 25.3 million ADBE shares.  For more activity from this hedge fund, we posted when they boosted their Rockwell Collins stake.  You can also view Jeff Ubben's presentation from the Value Investing Congress.

Per Google Finance, Adobe Systems is "a diversified software company. The Company offers a line of software and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring and engaging with content and experiences across multiple operating systems, devices and media. The Company markets and licenses its software directly to enterprise customers through its sales force and to end users through application stores and its Website at www.adobe.com. Adobe also distributes its products through a network of distributors, value-added resellers (VARs), systems integrators, independent software vendors (ISVs), retailers and original equipment manufacturers (OEMs). In May 2013, Adobe Systems Inc acquired Ideacodes LLC. In July 2013, Adobe Systems Inc announced the completion of acquisition of privately held Neolane."

Jeff Ubben's Favorite Investment Ideas: Value Investing Congress

Continuing coverage, we're posting up notes from the Value Investing Congress.  Below are notes and the presentation of Jeff Ubben of ValueAct Capital, which manages around $8.5 billion.  His presentation was entitled 'Avoiding Complexity and VAC Circle of Life.'

Ubben's Stock Ideas

CB Richard Ellis (CBG):  Dominant market share, 50% recurring revenue, does real estate leasing.  Ubben pointed out that outsourcing is in the first innings and that the company is one of only 2 that can scale it.

Moody's (MCO):  He doesn't like traditional financials, hard to value assets, or retailers.  Yet he likes MCO.  Says high moat and limited competition, pricing power.  55% recurring revenue and a big M&A cycle coming.  Then he showed slides from the company's pitch book (Einhorn disparaged MCO earlier in the day).  Ubben said MCO is "schmuck insurance" and at the end of the day their ratings are a currency.  We previously detailed when Ubben went activist on MCO back in 2011.

Valiant Pharmaceuticals (VRX):  A branded generics play.  We recently posted up why Ruane Cunniff & Weitz Funds like VRX.

Motorola Solutions (MSI):  This is his biggest position.  He says the big thing here is to drive the payout ratio.  It's going slow and steady but he thinks there's an opportunity for them to actively help the company. 


Other stocks he mentioned:

Adobe (ADBE)

CR Bard (BCR)

Sara Lee

Halliburton (HAL)



Learning From His Mistakes:

1. Valuation.  Just math, require 10% per year.
2. Leverage.  Make sure it's appropriate for the cyclicality of the business.
3. Bad Governance.  Don't go looking for a problem to fix.
4. Complexity.  Need easily identifiable drivers.  Simpler, the better.

For more from this hedge fund manager, we've posted up Ubben on activist value investing.


Embedded below is Ubben's slideshow presentation from the Value Investing Congress: 





Check out the rest of the hedge fund presentations from the Value Investing Congress.

Lee Ainslie & Maverick Capital's Third Quarter Letter

Lee Ainslie's hedge fund Maverick Capital is out with their third quarter investor letter and year-to-date for 2010, they're up 8.2% and have now seen 14.1% annualized returns since inception in 1995. Their Levered fund is doing even better this year, up 17.3% and has seen 22.3% annualized since inception. In total, the firm now manages over $12 billion across their various investment vehicles.

These returns are pretty solid but Q4 might be off to a bumpier start considering that one of their larger holdings has been Apollo Group (APOL), the for-profit education play that's down over 23% in the past month. But on the converse side of things, their stake in Commscope (CTV) is up almost 40% over the past month on news of potential buyout talks. At the recent Value Investing Congress, Ainslie said he believed that technology stocks are cheap. The cheapest, he argues, that they've been in 20 years.

Maverick's Exposure Levels

Given this stance, it should come as no surprise that Maverick has a large allocation of capital to technology stocks. At the end of September, Maverick was 11.7% net long technology. And at the Value Investing Congress, he revealed that Maverick has its highest technology exposure ever.

At the end of September, other notable net long exposure include financials at 13% and the consumer sector at 12.6%. In terms of notable net short positions by geography, they are net short emerging market technology, European technology, emerging market industrials, and Japanese media & telecom. Maverick seems to be betting on US companies and hedging it via shorts in foreign companies to some extent.

Maverick's Portfolio

Regarding portfolio construction, Ainslie's firm currently has 67 longs and 80 shorts. Their largest long represents a 4.7% position whereas their largest short is 2.9%. Overall, Maverick's average position size is 2.1%. As we've detailed in our profile of Maverick Capital, Lee Ainslie implements strict position sizing rules and has a solid focus on risk management. The hedge fund's top 10 investments currently represent 29% of the portfolio.

We detailed Maverick's second quarter positions in our newsletter, Hedge Fund Wisdom. The next issue (released in a few weeks) will detail Ainslie's third quarter portfolio holdings. In the mean time, we know Maverick has been long Commscope (CTV), Marvell Technology (MRVL), and Adobe (ADBE). Dell (DELL), Intel (INTC), and Microsoft (MSFT) were others he recently talked about. Be sure to subscribe to our newsletter to see what top hedge funds are investing in once our next update comes out.

Bond Market Inflows/Equity Market Outflows

Embedded below is Lee Ainslie and Maverick Capital's third quarter 2010 letter to investors. In it, Maverick's Steve Galbraith talks about the potential bond bubble where he argues that government bonds are essentially trading at a P/E equivalent to 40x. He also addresses a noticeable change in investor sentiment as they prefer bonds to stocks in a knee-jerk reactionary maneuver:

"Since 2007 over seven hundred billion dollars has flowed into fixed income funds while nearly two hundred billion dollars has left equity funds. These flows are staggering; they suggest the (potentially lethal) combination of driving 100 miles per hour while looking through the rear view mirror because the scenery just past looks so good (bonds outperformed stocks by record levels in part of this period), but also being too afraid to look forward in fear that, well, there is no there there."

Here's the letter:



You can download a .pdf copy here.

Be sure to also check out Lee Ainslie's presentation from the Value Investing Congress just a few weeks ago for some more of his recent thoughts. To see what stocks Ainslie owned in Q2 (and in Q3 in our upcoming issue), head to our Hedge Fund Wisdom publication.

Hedge Fund Viking Global Likes American Tower (AMT), Invesco (IVZ): Q2 Letter

Andreas Halvorsen's hedge fund firm Viking Global is out with its second quarter 2010 investor letter and courtesy of Dealbreaker we wanted to highlight some of their latest portfolio maneuvers. Here are Viking's latest top 10 positions:

1. Invesco (IVZ)
2. Unilever (UN)
3. American Tower (AMT)
4. Oracle (ORCL)
5. Comcast (CMCSA)
6. News Corp (NWSA)
7. Tyco International (TYC)
8. Sherwin-Williams (SHW)
9. Goodrich (GR)
10. Adobe Systems (ADBE)

Right off the bat there are several changes to highlight between Q1 and Q2. Back in the first quarter, Visa (V) was Viking's largest position. This time around, Visa is nowhere to be found in their top 10 positions. One might assume they reduced or exited this position, but there was no commentary on this stake to verify. If you read into their letter, you'll see that they are more focused on building concentrated positions and as a result ramped up stakes in various companies. Visa, apparently, was not one of them.

It's quite possible that the credit card processor is still a holding at Viking and other portfolio positions merely leapfrogged their V stake. The same could be said for their position in Express Scripts (ESRX) as it was their fourth largest holding in the first quarter and is nowhere to be found on their top 10 holdings for Q2. These positions will certainly be something to look for in their Q2 13F filing that we'll cover when it's released in a few weeks.

For the second quarter, Halvorsen's hedge fund maintains its long-held position in Invesco as it moves back up to their top holding. Halvorsen writes,

"Our largest loss in the quarter was Invesco which cost us 1.3% in VGE and 1.4% in VLF. Invesco has been in our top ten list since we initiated the position in the fourth quarter of 2007 and was our second most profitable investment in 2009. During the second quarter, Invesco sold off along with other asset managers despite reporting better than consensus first quarter earnings and higher synergy estimates from the Van Kampen acquisition. Encouraged by the fundamental strength of the company and financial and strategic benefits from the Van Kampen acquisition, our core thesis has not changed and we continue to believe that Invesco will outperform its competitors. Viking is currently net long 2.4% in the Asset Management and Custody Banks sub-industry group, which includes the Invesco long position and short positions in asset managers that we believe will experience deteriorating fundamentals and are more levered towards a declining market."

In terms of other Viking positions, Unilever also remains a high conviction pick for them. Moving down the top 10 positions list, News Corp and Tyco also retain their status as a top holding from Q1 to Q2. In terms of new additions, Viking has moved up the following positions: Adobe, American Tower, Comcast, Goodrich, Oracle, and Sherwin-Williams.

Of those stakes, Viking has increased conviction in their new American Tower (AMT) position. Viking likes the company due to its solid business model with high barriers of entry, pricing power, and strong secular growth. Additionally, the company has compelling operations overseas in numerous growth markets. Of this stake, Halvorsen writes,

"We have owned American Tower in the past and we re-initiated a position this quarter because we believe the market has taken many of these characteristics for granted and is underestimating future growth opportunities both domestically and internationally. Additionally, we believe that American Tower’s shareholder remuneration will accelerate over the next several quarters and that, in light of certain tax incentives, the company may convert to a REIT. We find American Tower to have a superior business model relative to most traditional REITs, yet it trades at a discount to the REIT-average. We believe the combination of predictable growth, accelerating shareholder returns, and pending REIT status will generate greater shareholder interest over the next several quarters causing the stock to trade closer to our price target over time. As of June 30, American Tower was our third largest long position at 4.3% of VGE capital and 4.9% of VLF capital."

We've touched on this industry as a compelling investment numerous times as hedge funds favor wireless tower stocks. Numerous high profile managers have moved in and around AMT. Additionally, we've highlighted how hedge funds are bullish on rival company Crown Castle International (CCI) as well. SBA Communications (SBAC) is the other player in the sector and some funds have moved in and out of stakes there as well.

In addition to these portfolio changes, it's obviously worth noting that Viking has struggled performance-wise this year as their Viking Global Equities portfolio was down 5% in the second quarter. As such, Halvorsen penned quite an explanation as to how Viking will strive to atone for these errors and the solution apparently circles around the idea of increased concentration in their highest conviction picks. As such, Viking has added to numerous positions, many of which we've detailed recently. It will be interesting to see if Viking's increased concentration (and possibly increased volatility) is a recipe for correcting their recent struggles.

We highly recommend reading Viking Global's entire letter on Dealbreaker here.