Boykin Curry's Value Investing Congress Presentation: Aon & Goldman Sachs

At day two of the Value Investing Congress, Boykin Curry of Eagle Capital gave the case for going long Aon (AON) and Goldman Sachs (GS) in a presentation entitled "Time Horizon & Analytical Tools."

Be sure to check out all our notes from the Value Investing Congress.


Boykin Curry (Eagle Capital)

Aon (AON): Should have a 15% compound return for five years. It's a duopoly with a free call option (their new GRIP system) and another call option (multiple expansion). However, the company won't have any organic growth and GAAP measure makes it look less attractive.

He mentioned that the turn in the insurance cycle should be a tailwind. Compound rates are over 100% and some natural disaster/catastrophe will be a catalyst for insurance premiums to increase. We've analyzed AON in a past issue of our Hedge Fund Wisdom newsletter.


Goldman Sachs (GS): Company is facing a lot of short-term headwinds but if you put a 14x multiple on the i-banking division you get $1 billion and you put a 13x multiple on the PE division. He gives a liquidation value of $155 billion and most of their assets are liquid. Curry says GS could buyback 30% of equity over 3 years.


Q&A Session:

1. Goldman's balance sheet? They are borrowing money and sitting in cash to protect against bank run and to take advantage of potential opportunities.

2. Regulatory uncertainty will continue to be a problem for GS but he thinks they should still make a bunch of money.


About Boykin Curry: Eagle Capital has over $10 billion AUM and since inception in 1988 has returned 15.1% annualized.


Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.

Ira Sohn Conference Notes Part 2: Ackman, Einhorn, Eisman, Icahn, Greenblatt

This is part 2 of our ongoing coverage of presentations given by top hedge fund managers at the Ira Sohn Conference today. Be sure to check out part 1 of our notes from Ira Sohn which includes presentations from Dinakar Singh, Jim Chanos, Phil Falcone and more.

Part 2:


Steve Eisman / FrontPoint Partners: Eisman was profiled in Michael Lewis' great book, The Big Short as one of the big winners in the subprime trade. Last year at Ira Sohn, he said to short for-profit education stocks and that trade paid off as many stocks were down anywhere from 25% to 72% over the past year.

This time around, Eisman focused on US financials, asking "are financials dead forever?" He notes that credit quality is improved but interest margins will most likely continue to contract.

Eisman likes property and casualty insurers, citing the potential for commercial policy pricing to improve. He noted that his year has been particularly hard hit with natural disasters, leading to large insurance losses. He thinks P&C insurers are a 'buy' even if there's another big disaster.

He says the least risky way to play this is via insurance brokers like Marsh & McLennan (MMC), Willis Group (WSH), and Aon (AON). You can read an in-depth analysis of AON in the free sample of our Hedge Fund Wisdom newsletter (direct .pdf download link).

For riskier plays, Eisman points to pure reinsurers based in Bermuda and pulled up a list of them, the most well-known of which is probably Ace (ACE).


Bill Ackman / Pershing Square Capital: Ackman said to buy Family Dollar (FDO). He likes the dollar-store chain because it is like Walmart, but there's room to grow. He also notes the company's solid return on capital as they can build plenty of new stores. Many of Ackman's plays are retail or real estate focused and this one is no different.

FDO actually received a bid to go private from Nelson Peltz's Trian Fund, who offered between $55 to $60 per share in February. They are one of the largest shareholders, owning almost 8% of FDO's shares. Ackman believes that FDO is an attractive target for a leveraged buyout.

Ackman notes that Family Dollar has fallen behind competitor Dollar General (DG) ever since KKR bought DG and now FDO has to improve. The Pershing Square manager thinks shares will trade as much as 70% higher (FDO currently trades around $55 and Ackman thinks it's worth up to $92 including dividends). He also mentioned that his hedge fund was even buying shares today.

We also covered that Ackman started an activist position in Alexander & Baldwin (ALEX).


Joel Greenblatt / Gotham Capital: The value investor talked about the advantage of having a long-term investment horizon. He emphasizes investments that fall under the 'time arbitrage' classification. Market Folly readers will recall that Blue Ridge Capital's founder and hedge fund manager John Griffin also uses this approach. He classifies investments as either time arbitrage or catalyst driven.

Greenblatt's picks included a myriad of names, including: WellPoint (WLP), GameStop (GME), Intel (INTC), Walgreens (WAG), Nordstrom (JWN), Bed Bath & Beyond (BBBY), and Humana (HUM).

He also has a new book out entitled, The Big Secret for the Small Investor: A New Route to Long-Term Investment Success. You can also check out his recommended reading list here.


David Einhorn / Greenlight Capital: Einhorn's presentation laid out the bull case for life insurer Delta Lloyd (AMS: DL), traded in the Netherlands. This is one of his hedge fund's largest positions.

His second pick was Microsoft (MSFT). The tech giant has attracted lots of value investors as of late and you can view fellow hedge fund T2 Partners' presentation on MSFT here. Einhorn says the company still has a shot at the smartphone market with its partnership with Nokia (NOK). He also notes that it is trading at a discount as the market isn't giving them credit for their solid position in cloud computing.

Einhorn also said that CEO Steve Ballmer doesn't care what Wall Street thinks and that could possibly be a good thing. However, he conceded that Ballmer is "stuck in the past" and said that Ballmer's "continued presence is the biggest overhang on Microsoft's stock." It's very clear Einhorn wants Ballmer fired.

We've also detailed Greenlight Capital's recent letter to investors for insight into their new positions in Yahoo! (YHOO) and Best Buy (BBY).


Carl Icahn / Icahn Partners: The legendary rabblerouser began his presentation by saying he's made a fortune by studying natural stupidity. Icahn said that "activism" in the old-school sense of the word is dead; there aren't anymore true corporate raiders anymore. He says that there's tons of money to be made by shaking things up at a company.

He went on to talk about why he returned outside investor capital in his funds. He simply didn't want to be responsible for the losses of others like he was during the 2008 crisis. Icahn fears further problems will arise in the markets in a year or two. His pitch at the conference? His holding company: Icahn Enterprises (IEP).


Mark Hart III / Corriente Advisors: If you're unfamiliar with Hart, then all you need to know is that he created subprime mortgage and sovereign debt funds well before the crises happened, profiting handsomely from the events that followed.

In his speech, Hart said to short China and this isn't the first time he's made this case. He argues that it is a credit fueled bubble and there are many misconceptions out there. It seems his conviction is high here as he says that China's bust will be much larger than the Asian crisis in the 90's.

Hart argues that inflation will end China's credit growth. This isn't the first time we've seen this argument. Hedge fund Kleinheinz Capital has in the past said that inflation is the biggest threat to emerging markets. Coincidentally, both Kleinheinz and Corriente operate out of Fort Worth, TX. Lastly, Hart mentioned he was buying puts on the renminbi.


Jeffrey Gundlach / DoubleLine: He used an Andy Warhol car crash painting as an illustration for the housing market. He said that Bank of America $BAC is a proxy for the ABX and says it's going lower. Gundlach likes natural gas.

Interestingly enough, Gundlach said that gold is too heavy to carry around to use as a form of currency to pay for things. Instead, he said to use gems to protect against a crash and uncertainty because they are more portable, noting that you can carry a ruby in your shoe. Gundlach prefers holding cash or gems instead of gold or silver.

As an aside, it's worth noting that diamond prices have been heading higher in recent months. They are not a publicly traded commodity and high demand from India and China seems to be driving prices there.


Marc Faber / Gloom Boom & Doom Report: Faber is very clearly not a fan of Ben Bernanke. He says that the Federal Reserve Chairman is a student of history regarding the Depression, but that Bernanke unfortunately doesn't know what caused it. Faber notes that as the Fed prints more money, cash and bonds obviously aren't good investments. He also joked that if everyone at Ira Sohn complained, Bernanke would come in and drop a trillion dollars right there.

Faber said not to own US government debt, even if the deflationists end up being right. He is also an advocate of owning gold but not storing it in one place. Faber says you need to store gold all over the world in Australia, Switzerland, etc. He also disputed Gundlach's notion to own gems over gold and said people will always value gold, even if you're in a jungle or desert because everyone knows what it is.


Steve Feinberg / Cerberus: He pitched residential mortgage backed securities (RMBS) as a compelling opportunity and labeled them 'cheap,' given the high amount of underwater loans and depressed home prices.


Peter May / Trian Fund Management: Peter May of Nelson Peltz's Trian Fund pitched upscale jeweler Tiffany & Co (TIF), citing "enormous price appreciation" ahead. Catalysts for TIF include new store openings, vertical integration, new watches, and increased analyst coverage and he said shares could see $100 (they currently trade around $70.)


If you missed it, be sure to also check out part 1 of our notes from Ira Sohn featuring investment ideas from Jim Chanos, Phil Falcone, Dinakar Singh and more.

Free Sample of Our Hedge Fund Wisdom Newsletter

Here's your chance to see a full past issue of MarketFolly's premium newsletter, Hedge Fund Wisdom. Hopefully this gives you an idea as to the high quality research and in-depth nature of the newsletter.

The free sample issue includes quick investment thesis pitches on Sirius XM Radio (SIRI), Express Scripts (ESRX), Alcon (has since been bought out), and Cisco Systems (CSCO).

It also features in-depth analysis of Aon (AON) and CareFusion (CFN). And of course, it highlights the portfolios of 25 top hedge funds.


Click here to download a free .pdf sample of Hedge Fund Wisdom.


The sample is also embedded on the website below:




The above download is a past issue. Our brand new 91-page issue was just released! If you like what you see, make sure to take advantage of our low introductory pricing before prices go up on June 30th. Save 33% instantly by clicking here.

Corsair Capital Management's Letter: Q4 2010

Jay Petschek's Corsair Capital Management is out with its fourth quarter letter. In it, we see that Corsair finished 2010 up 15.4% which ironically is the exact same number as their compound net annual return since inception.

Highlighting their overall market view, Petschek writes, "as we believe post-recession equity markets are generally driven by the direction of earnings, which in turn is driven by economic growth, the markets seem to have room to move higher."

Portfolio Positions

Corsair singles out their position in LyondellBasell (LYB) in the letter as they believe the stock still trades at a discount to its peers. You'll recall that Dan Loeb's Third Point owns LYB in size as well. The company announced a dividend policy and plans to optimize its capital structure.

Petschek also highlights their stake in CapitalSource (CSE) as the company continues its transition from an over-leveraged REIT into a bank. Corsair believes shares are still undervalued and likes the company's debt repurchases and share repurchase plan.

Their letter also focuses on their position in Aon (AON). The hedge fund notes that the integration of Hewitt will create shareholder value and further entrench the company's dominant position in human capital solutions. We penned an in-depth analysis of AON in our last issue of our Hedge Fund Wisdom newsletter as many hedge funds had accumulated shares in past quarters. Click here for a free sample issue.

Corsair Capital Management's full letter and their investment write-up on Neo Material Technologies (NEM) is embedded below:



You can download a .pdf copy here

If you missed them, we've posted up a plethora of hedge fund letters recently, including:

- Maverick Capital's letter
- John Paulson's year-end letter
- Dan Loeb & Third Point's Q4 letter
- JANA Partners' letter
- Greenlight Capital's commentary
- Summary of Perry Capital's letter
- Xerion Fund's 2011 strategy
- Summary of Kleinheinz Capital's letter

Corsair Capital's Latest Investment Ideas: Q2 Investor Letter

Today we present the latest investor letter from Jay Petschek and Steven Major's hedge fund Corsair Capital. For the second quarter, Corsair was down -6.3% and that leaves them flat on the year. So, why should you care what they have to say? Well, because they've returned an impressive 14.9% annualized since inception in 1991.

Petschek and Major believe that a lot of pessimism is currently priced into stocks. While there has been much talk this year about the lack of success in stockpicking, Corsair argues that, "while tight correlation among stocks is challenging in the near term, it is helpful in creating opportunities for stockpicking." In general, they are looking for companies that can generate value beyond merely participating in an economic recovery. In particular, they are trying to focus on less cyclical business models.

So, what stocks do they see as compelling? Take LyondellBasell (LALLF) as an example. This post-bankruptcy equity has improved its balance sheet and operating cost structure yet has sold off recently. While comparable companies trade at 6x mid-cycle EBITDA, LALLF only trades at 4.5x. Additionally, the company trades below a bid it received while in bankruptcy from Reliance Industries. This isn't the first time we've seen a hedge fund advocate a position in this chemicals company. At the Ira Sohn Investment Conference, Jamie Dinan of hedge fund York Capital presented the bullish case for Lyondell. Additionally, Dan Loeb's hedge fund Third Point LLC stated they were bullish on post-bankruptcy equities as well in a recent investor letter.

In Corsair's first quarter commentary, Petscheck and Major outlined a bullish stance on Expedia (EXPE). This stance continues in their most recent letter given the company is trading at 12x EPS and under 10x free cash flow. However, they have noted some caution due to Google's move into the online travel industry with its acquisition of ITA. While they are watching the developments there, they like the risk/reward skew. The online travel booking space has certainly garnered interest from some prominent hedge funds. Chase Coleman's Tiger Global has fancied Priceline.com (PCLN). Additionally, Matt Iorio's hedge fund White Elm Capital has in the past added shares of Orbitz (OWW). Corsair, on the other hand, prefers Expedia (mainly due to their high growth and high margin asset, TripAdvisor).

In addition to those plays, hedge fund Corsair also highlights Live Nation Entertainment (LYV) as an attractive investment due to secular tailwinds, an oligopolistic business and modest capital requirements. Keep in mind that fellow hedge fund Lone Pine Capital acquired a Live Nation stake as well. Lastly, Corsair points out opportunity in the leveraged recapitalization of Fidelity National Information (FIS), one of the more widely held stocks among hedge funds.

Embedded below is Corsair Capital's second quarter letter as well as a full investment write-up on their latest pick, insurance broker AON (AON):



You can download a .pdf copy here.

We're covering a deluge of second quarter market commentary and have already detailed Perry Capital's latest letter, David Einhorn's most recent investments, and a presentation from hedge fund T2 Partners. Stay tuned for more coverage each day.