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)

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.

What We're Reading ~ 5/9/18

Factfulness: Ten reasons we're wrong about the world [Hans Rosling]

Retail: is the beauty industry 'Amazon proof?' [FT]

The hyperfragmentation of retail and why the winners are digital ad platforms [Medium]

Attack of the micro brands [Medium]

Big beer struggles to tap into shifting consumer trends [Food Dive]

Morrisons' recovery is underway but is it in the share price? [UK Value Investor]

Behind the rise of activist short sellers [AFR]

Why T. Rowe Price likes Alphabet, Amazon, Facebook [Barrons]

A seed investing framework [Medium]

The Chinese unknown that's making Africa's phones [Bloomberg]

China wants its tech firms back, are CDRs the answer? [Bloomberg]

Why there's a worldwide shortage of vanilla [The Economist]

The Canadian king of New York: inside the rise of Brookfield [Bisnow]

At Uber, new CEO shifts gears [New Yorker]

Mark Zuckerberg on Facebook's hardest year, and what comes next [Vox]

Deep fiber: the next internet battleground [Deloitte]

CRISPR: the gene-editing tool revolutionizing biomedical research [CBS News]

Where's the invisible hand when you need it? [Stanley Druckenmiller]

The importance of high standards [Medium]

What We're Reading ~ 8/2/17

Profile of the founders of payments company Stripe [Bloomberg]

Staying competitive as the world changes [Collaborative Fund]

The unreformed stock picker: profile of Bill Miller [Forbes] 

Investment case for Gilead Sciences [WertArt Capital]

Netflix has $20 billion in debt - can it keep borrowing its way to success? [LA Times]

Palantir, the 'special ops' tech giant that wields as much power as Google [The Guardian]

Craft beer, brought to you by Big Beer [NPR]

On the threat of European grocery discounters [FBIC Group]

Priceline: the world's largest online travel company [Economist]

Electric vehicle outlook [Bloomberg]

Mental models: how to train your brain to think in new ways [James Clear]

The best path to long-term change is slow, simple and boring [NYTimes]

The 4 keys to learning anything [Zen Habits]
 

What We're Reading ~ 4/12/17

Matchmakers: The New Economics of Multisided Platforms [David Evans]

Beating the odds when you launch a new venture [Harvard Business Review]

Consolidated learnings: What I think I know about investing [Medium]

Inside Blue Apron's meal kit machine [Bloomberg]

Is it last call for craft beer? [NYTimes]

Americans haven't been this optimistic about stocks for nearly two decades [Bloomberg]

The gap between sentiment and certainty is stunning [WSJ]

On the ramifications of Brexit [Arp Investments]

How Canada completely lost its mind over real estate [Macleans]

Why Costco (COST) loves store sales: you try shipping a tub of mayo [WSJ]

Q&A with Airbnb's CEO Brian Chesky [Fortune]

Mobile video to grow almost 900% by 2021 Cisco predicts [Fierce Wireless]

Inside Verizon's go90, a video app mix between YouTube and Netflix [Business Insider]

Your focus should be on saving money, not investment returns [Collaborative Fund]

Instagram (FB) 'influencer' marketing is now a $1 billion industry [MediaKix]

Quick video on Zara: How a Spaniard invented fast fashion [YouTube]

Third Point's Q1 Letter: Playing Merger Arb & Pro Forma Situations

Dan Loeb's Third Point is out with its first quarter letter.  In it, they talk about how hedge funds have seen a lot of carnage as of late.

Specifically, they see the decimation in merger arbitrage land as an opportunity, writing, "many of these combined businesses should compound in value thanks to the benefit of synergies, modest financial leverage, and strong or improved management teams that have a history of successful capital allocation."

Their letter outlines their thesis on the following plays:

- Dow / DuPont
- ABInBev / SAB Miller / Molson Coors
- Time Warner Cable / Charter Communications
- Chubb / ACE
- Danaher

Embedded below is Third Point's Q1 letter:

What We're Reading ~ 3/16/2016

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism [Jeff Gramm]

Two powerful mental models: network effects and critical mass [Andreessen Horowitz]

How to be wrong as an investor [A Wealth of Common Sense]

A look at the concept of moats in investing [Intrinsic Investing]

The great race: e-commerce in India [The Economist]

A look inside Google's DeepMind [The Verge]

Amazon's Echo brims with groundbreaking promise [NYTimes]

In-depth analysis of Moody's (MCO) [Value Seeker]

A look at Visa & Mastercard [JanaV]

American Express, Synchrony Financial & the changing credit card landscape [PunchCard]

Amex: cheap blue chip or value trap? [Value & Opportunity]

How credit cards tax America [Priceonomics]

After TV: Video's future will be bigger, more diverse & precarious than its past [Redef]

John Malone 'cable cowboy' faces test in rounding up the right mix of assets [Variety]

The television has a business model problem and it's killing good TV [Redef]

The craft beer bubble [VinePair]

The rise and final hours of Chesapeake's Aubrey McClendon [Bloomberg]

What We're Reading ~ 11/11/15

Dream Big: How the Brazilian Trio behind 3G Capital acquired AB Inbev, BK & Heinz [Correa]

10 questions to help define your investment philosophy [A Wealth of Common Sense]

A way to detect bias [Paul Graham]

What the Marines taught me about investing [WSJ]

The peril and opportunity of China [Mauldin]

Burbank's Passport says no place safe in China-led decline [Bloomberg]

Kyle Bass on China's looming banking crisis and the US economy [Fortune]

Platform Specialty Products could rebound [Barrons]

On Warren Buffett's stake in IBM [Medium]

On the focus of short-term profits [NYTimes]

How FICO became outdated [Pymnts]

Why the next sports empire will be built on eSports [Redef]

America's exurbs are booming [New Geography]

Sohn London Conference Notes 2013: Hohn, Armitage, Tangen, Gaonkar & More

The 2013 Sohn London Conference just took place and MarketFolly has notes below.  The event featured hedge fund managers presenting their latest investment ideas benefiting paediatric cancer and childhood disease research.


Sohn London Conference Notes 2013

Chris Hohn – The Children’s Investment Fund  

Following on from last week’s disclosure that TCI had bought a large part of the UK’s privatised post office, Royal Mail, in the secondary market, Hohn pitched two more privatisation ideas. He said that governments are the worst manager and that there are huge efficiency savings to be made in the aftermath of a privatisation.

Idea 1: Aurizon (Australia)  - Aurizon, formerly QR National, is a publically listed rail company in Australia. According to Hohn, Aurizon’s CEO, Lance Hockridge is a winner. Recent returns have been about 10% per year with 6% volume growth per year. The cost cutting potential is huge. Large scale redundancies are already underway. Aurizon was privatised with no debt, which Hohn said was ridiculous. Hohn implied that he has been pressing the company to re-lever and that he had had some success. Aurizon can have a double digit dividend within a couple of years. The company is a play on the Austrailian commodities market and the Chinese and Indian economic growth.

Idea 2: Long EADS  - Hohn noted that the company has had a bad record with investors – no one has made money for 30 years. Sometimes it pays to study the history of a company. He believes that the EADS will double and then triple profits in the coming years. Airbus is now competing well with Boeing. There is no chance of new competitors breaking into the market as safety concerns keep new entrants out. Pricing is increasing. Costs are falling as suppliers are squeezed for the first time. EADS is committed to 3.75bn euro of stock buybacks over the next 18 months. EADS 10x multiple can close the gap on Boeing’s 15 x multiple.



John Armitage - Egerton Capital  

Idea 1: Long Nordea (Sweden)  - Armitage said that Nordea is a simple, low risk stockpick which he referred to as a ‘teddy bear stock’ because it allowed him to sleep well at night. Nordea is the leading Scandinavian bank – being #1 or #2 in most Nordic countries. Nordea performed well in the financial crisis. The bank does not look for dynamic growth in earnings and that is its strength. Boring is good in the banking sector. Nordea will grow moderately in the future. Its market has oligopolistic qualities. Loan loss rates will drop for a prolonged period of time. Nordic banks are much better capitalised than their European or US counterparts. The dividend is likely rise over time.

Idea 2: Long Ocwen (OCN)  - Armitage said that whilst his first pick had been simple and straightforward, Ocwen was a far more complex and complicated situation. Ocwen is a mortgage servicing business which sits at the core of the difficulties that the US housing sector has faced since the financial crisis. In the US, mortgages are packaged and turned into bonds. Many of the loans made over the last decade or so are delinquent and have needed to be modified or foreclosed. Big banks have been overwhelmed and are often too unfocused to carry out the mortgage servicing task that Ocwen specialises in. Ocwen has a good technology platform which he referred to as a dialogue engine. It profiles a borrower’s ability to pay back mortgages. Making the appropriate loan modifications is a key driver of success or failure. Ocwen’s founders own 22% of the business. There will be growth in income from the existing portfolio of loans. They are producing $1.1bn of FCF. Some of that money will be used for stock buybacks which have recently been agreed. Ocwen are well placed to make acquisitions. Armitage believes that Ocwen will be able to deploy their existing expertise and technology to diversify into new markets such as car loans and subprime.  Note that Steve Eisman also pitched OCN at the Invest For Kids Chicago conference this week as well.


Nicolai Tangen – AKO Capital  

Idea: Long Experian  - Experian is the largest credit bureau in the world. It has a strong balance sheet and strong organic growth at 7%. They have lifted margin growth by 700 basis points in the last 6 years. Tangen believes margins will continue to increase in the future. Experian is selling credit data in more and more countries and the great thing about credit data is that you can often sell the same data several times. Demand for credit data has risen since the financial crisis as regulators have forced banks and other financial institutions to become more discerning about who they lend to. The rise of the internet and E-commerce is also creating demand for credit data. Experian has a significant moat as there are no other global players, just regional competitors. There are three players in the US but only 2 players in other countries. Experian is a safe play in as much as it has counter-cyclical qualities. Its gearing is falling rapidly as the cash keeps coming in.



Mala Gaonkar, Lone Pine Capital  

Mala Gaonkar is a co-portfolio manager at Lone Pine, a role she has held since 1998.

Idea: Long Qualcomm (NAS: QCOM)  - 3G & 4G wireless data and voice standards create two thirds of the business. The other one-third is from chips. Expect more unit growth in the smart phone market than most people assume. It will double in the next three years. Generally speaking, we will replace our smartphones more quickly than many analysts assume. The active broadband market is not yet mature. Royalty rates are resilient. QCOM has far more patents than their competitors. They will be able to diversify into new mobile devices in the future.  



Julian Sinclair – Talisman Global Asset Management

Idea 1: Long Tata Motors -  Sinclair valued Jaguar and Land Rover at around $17bn, the same as Tata’s market cap. Jaguar and Land Rover make up about 80% of Tata’s net worth so you get the other 20% for free. Jaguar and Land Rover are quintessential British brands. They are now competing well with the big German luxury brands in terms of quality and reliability. Tata is producing more reliable cars than it used to and that has been backed up by recent JD Power surveys. Tata is trading at 6x earnings. Sales are expected to expand by 20% during the next five years. There is potential for the share price to double Tata can even attain the double digit margins that Porsche has achieved. Tata is growing top line and bottom line simultaneously. Tata is also has potential as an emerging market recovery play.

Idea 2: Shared Appreciation Mortgages (SAMs)  SAMs are a form of mortgage backed security created in the late 1990s by banks like Barclays and Royal Bank of Scotland in the UK. Sinclair sees SAMs as the last great post-crisis credit trade. If house prices go up by 2-3% they will pay out 11% and if prices go up by more they will pay out even more. SAMs have a defensive quality too. If house prices were to fall by 5% SAMs would still pay out a similar return to Gilts (UK government bonds).



Eashwar Krishnan – Tybourne Capital Management  

Eashwar Krisnan spent 12 years as a Managing Director and Senior Analyst at Lone Pine. In 2007, he moved to Hong Kong to set up and manage Lone Pine’s operation in Asia. He set up his own fund  Tybourne Capital in 2012. Tybourne focuses mostly on equities in the consumer, financial and TMT   sectors in Asia.

Advertising in India is 20x cheaper than in the US. Over time the gap will narrow. TV dominates advertising spending in Asia. There is a favourable environment for investing in commercial TV businesses in Asia at the moment. Indonesians watch an average of 5 hours Television per day. He likes companies run by owner operators with skin in the game. Advertising growth rates can grow at double digits for many years.

Idea 1. Long Media Nusantara Citra MNC (Indonesia). Nusantara has 42% of audience share; it’s the industry price leader.

Idea 2. Long Surya Citra Media (Indonesia). Surya has 22% of primetime TV. It develops and owns content, which produces high returns on capital.

Idea 3. Long Zee Entertainment Enterprises (India)  - Zee is the #2 provider after Star owned by Fox (Tybourne hold Fox stock too). Zee will be a beneficiary of digitalisation. Two-thirds of TV viewers in India receive an analogue signal at present.

Idea 4. Sun Investments (India). Sun is the #1 player in Southern India.



Ross Turner – Pelham Capital  

Ross Turner was an equity partner with Lansdowne Partners and set up Pelham Capital in 2007.

Idea: Long DCC Plc  - DCC was listed in Ireland but has transferred its main listing in the UK. It is a distributions services company with a large energy division – oil and LPG. This part of the business is straightforward involving the pickup of the product from terminals and distribution to the customer. In oil distribution in the UK, they are the only distributor with a national network giving them a dominant market position. DCC have developed their market position through bolt on acquisitions. The LPG market is more consolidated but they have greater pricing power there. Europe only makes up 15% of DCC’s income, but they are beginning to make in-roads via the same strategy of bolt on acquisitions. DCC is a stable business with a strong competitive position. Turner believes the valuation is still attractive as no one takes into account the continued impact of the acquisitions. He   sees 15% earnings growth per year going forward.



Mas Siddiqui – Naya Management  

Before founding Naya in July 2012, Mas Siddiqui was a partner at TCI Fund where he was responsible for global investments in credit and equities. Previously he was Managing Director at Canyon Partners.

Idea 1: Long Salvatore Ferragamo (Italy)  - Salvatore Ferragamo creates, develops and produces clothes and shoes for men and women and fragrances and eyewear. Despite being based in Italy, only 25% of its sales are in Europe. Sales in emerging markets are larger and this should continue as the EM consumer becomes better off. They are growing top line growth and they have scope to increase their prices. Salvatore is an ‘undermanaged company’ with plenty of room for improvement. Labour costs are 50% higher than its peers and they could reduce them. He did not say whether he had been pressuring the company for change but it seems quite possible given his background at TCI and his take on the company. The company has a clean balance sheet and is considering a large return of cash via a special dividend, which Siddiqui indicated is being sought by family owners who hold a 60% of the stock.

Idea 2. Short Essilor International   - Essilor is an ophthalmic optics company based in France. It is a world leader in the manufacturing of lenses for glasses. Using FCF and organic growth, Siddiqui believes the company is wildly overvalued. Naya’s research shows that brands do not have much impact in the lenses market. New digital production techniques will cut costs and lead to deflation in the sector. Competition from Zeiss and Hoya will intensify.



Bruno Rocha – Dynamo Capital  

Rocha started by using data from Dimson, Marsh and Staunton’s data set (see the Credit Swiss   Yearbooks) to argue that there is no relationship between GDP and equity returns. In fact he said that the data suggested that slow growing countries produce better equity returns that fast growing counties. Rocha said that what goes for countries is true too for business sectors where growth in earnings is different from growth in earnings per share. Slow growing countries and companies can create better returns for investors than fast growing countries and companies.

Idea: Long Anheuser Busch Inbev (BUD) -  In the beer business, Rocha showed that contrary to popular wisdom, Inbev was more profitable in wine drinking France than in beer drinking Germany. Rocha noted that there are only four big beer companies left in the western world. Inbev has economies of scale allowing it to benefit from the mature, consolidated markets.



Andrew Weiss – Weiss Asset Management  

Intriguingly, when Andrew Weiss was introduced it was suggested that his presentation at Sohn London was the first time he had ever spoken to a large investment audience as he normally prefers to address academic gatherings. Weiss then pitched one of his own funds as his investment idea.

Idea: Long Weiss Korea (LON: WKOF) - Weiss Korea invests in the listed preferred shares of companies incorporated in South Korea.  Andrew Weiss said that there are four things going for the investor in South Korea. Firstly stocks are cheap. Secondly, there is potential for future economic growth as the demographics are good; the workforce is well educated; the road, rail and internet infrastructure is sound; there is low debt to GDP and good natural resources. Thirdly there are catalysts to change including changes to the regulatory environment in favour of shareholders. Fourthly, there are exceptional access products like preferred shares. In Korea preferred shares are similar to ordinary shares but without the voting rights. Preferred stock tends to trade at a large discount to ordinary shares in Korea. 


For more hedge fund conference coverage, check out notes from other recent events:

- Invest For Kids Chicago notes: Lasry, Eisman, Cooperman & more

- Great Investors Best Ideas notes: Price, Akre, Pickens & more

- Excellence in Investing San Francisco notes: Burbank, Billick, McGuire & more

- Value Investing Congress notes: Ubben, Smith, Yacktman, Roepers & more

What We're Reading ~ Analytical Links 8/14/13

Stocks: cheap or expensive? ]The Big Picture]

Buffett still likes big deals, but settles for small prey [WSJ]

A look at Third Point Reinsurance [Brooklyn Investor]

A look at Amazon.com back in 1997 [JimRomenesko]

Blackberry puts up 'for sale' sign with Fairfax as potential bidder [Globe & Mail]

US Virgin Islands are in a catastrophic recession [Slate]

Smart leaders have proteges [Harvard Business Review]

In defense of the 30-year mortgage [WashingtonPost]

Is the baby bust over? [Sizemore]

In one bundle of mortgages, the subprime crisis reverberates [Dealbook]

Bubble trouble at Tesla [Barrons]

The death of beer has been greatly exaggerated [The Atlantic]

How a Brazilian oil billionaire lost 99% of his fortune [FinancialPost]

Scout Capital on Anheuser-Busch InBev (BUD): Q2 Letter Excerpt

Adam Weiss and James Crichton co-founded Scout Capital in 1999 and now manage around $4 billion.  In their second quarter letter to investors, they touched on their new stake in Anheuser-Busch InBev (BUD) that they initiated in the first quarter.

They purchased shares thinking that domestic (US) beer demand was coming back and that the company would turn from paying down debt to share repurchases or dividends.  Scout also felt BUD was cheap at a 7.5% free cash flow yield which was trading at a discount to other consumer franchises.

Their thesis centered on the discount stemming from two disconnects: 1. fundamentals of the industry and 2. capital allocation.

1. On fundamentals, they felt that the Street was "confusing cyclical effects for secular ones" as many investors had modeled the negative trend of beer volume into the future.  Scout went the other way and assumed better employment would help US volumes.

2. On capital allocation, Scout's analysis pointed to Anheuser-Busch InBev being likely to allocate cashflow in a different direction than simply paying low coupon debt in order to keep its investment grade rating.  The hedge fund thought BUD could buyback 7-9% of its shares per year, something that wasn't being priced in.

However, Scout also noted that the company's management is very smart with allocating capital as BUD instead chose to purchase Mexican brewer Grupo Modelo for $20 billion just before the end of the second quarter.

Scout writes,

"Factoring in expected costs savings, we believe the acquisition adds 10%-15% to ABInBev’s 2013 EPS on a full-year, pro forma basis. This doesn’t account for the tremendous international growth opportunity for Modelo’s flagship Corona brand as part of ABInBev’s global distribution network, which we estimate could contribute an additional 2%-4% earnings accretion. While the stock rose 10% on the news of the Modelo deal, our earnings estimates increased even more, and we believe BUD valuation is still too cheap relative to the growth and quality. The current free cash flow yield of 7.5% continues to represent a 20% discount to global consumer staples stocks with similar growth."

As if Anheuser-Busch InBev wasn't already in a dominant position in the beer market, this acquisition further entrenched their status.

Weiss and Crichton then concluded that,

 "With the benefit of an improving U.S. beer market, upside to the cost and revenue synergies from the Modelo acquisition, and redeployment of excess cash flow toward buybacks, we believe ABInBev can compound free cash flow per share at around 15% for the next few years and generate total shareholder returns in the high teens, before any multiple improvement. On our 2014 free cash flow per share estimate of $6.50 and a peer-like cash flow yield of 6%, our two-year price target is $110 or 40% upside (including dividends) from the current level. BUD remains a core position."

Per their most recent 13F filed with the SEC, Scout disclosed over a $365 million position in BUD as of June 30th.  At that time, it was their largest disclosed US equity long.  This isn't the first time we've seen a hedgie's pitch on the brewer as Whitney Tilson's T2 Partners also made a presentation on BUD a few years ago.

For more hedge fund Q2 letters, this week we've also posted up:

- Eminence Capital bullish on Google

- Why Bill Ackman sold Citigroup

Tilson's Hedge Fund Positioned Conservatively, Sees Unfavorable Economic Outlook

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners is faring quite well in 2010, up 13.6% net of fees. They've taken a conservative position with their portfolio based on increasing concerns of a weak economy. As we've detailed in their previous presentation, they currently favor undervalued large-cap stocks. Their July letter to investors reveals that they are currently 100% long, 70% short, leaving them 30% net long. This is below the historical average for hedge funds and T2 Partners has taken such a position for two reasons.

Firstly, they're concerned about macro factors and cite Jeremy Grantham's recent letter. Vaguely speaking, they deduce that there are three possible economic scenarios at hand that can take place over the next 2-7 years.

1. A V-shaped recovery: A scenario where the stock market could compound 7-10%.
2. A 'muddle-through' economy: Stock market could compound at 2-5%.
3. A double-dip (or worse): Somewhat similar to what Japan's gone through, stocks could be anywhere from flat to way down.

Tilson and Tongue have built a conservative portfolio as the odds have shifted unfavorably as of late. They are long high quality large-caps such as Berkshire Hathaway (BRK.A), Anheuser-Busch InBev (BUD), and Microsoft (MSFT). They've also been long BP (in-depth analysis of BP here) and Liberty Acquisition Corp. warrants as special situations plays. Additionally, we've detailed T2's new position in Alloy (ALOY). While they like these names, their economic outlook has caused them to reduce longs and add to shorts.

Secondly, they cite numerous opportunities on the short side of the portfolio. When irrationality rears its head, T2 prefers to exploit the inefficiency. As such, they feel they can enhance their returns on this side of the portfolio. Some examples of current irrationality in their view include:

- VistaPrint (VPRT) still at $33 (it's now at $30 after the release of T2's letter). This is a classic 'growth gone bust' story and they are short.

- InterOil (IOC) at $60. We've detailed in the past how T2 feels that InterOil is a public relations hype machine, releasing news tidbit after news tidbit when fundamentally the company doesn't have a whole lot going on. They've been short for a while now.

- MBIA (MBI) at $8.68. They feel that bond insurers are in a precarious position given their struggles. Bill Ackman had previously been short this name and his investment was detailed in the book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff.

- The for-profit education sector. Like many other hedge funds, T2 has joined in on the negativity parade surrounding these stocks. While they don't disclose which specific companies they are short, it most likely includes a basket of these possible candidates: Apollo Group (APOL), ITT Educational (ESI), and Corinthian Colleges (COCO). For the elaborate thesis behind this play, check out Steve Eisman's short sale of for-profit education.


Overall, T2 has been adding to short positions and is increasingly focused on large-cap bluechips on the long side of their portfolio. Embedded below is T2 Partners July letter to investors:



You can download a .pdf copy here.

To hear many other hedge funds' latest investment ideas, Tilson will be presenting at the Value Investing Congress (special discount here) along with Bill Ackman, David Einhorn, Lee Ainslie, Kyle Bass, John Burbank, and many more.

Hedge Fund T2 Partners Presentation on Microsoft (MSFT), BP (BP) & Anheuser-Busch InBev (BUD)

If there's one overwhelming theme we've seen from hedge funds as of late, it would be the 'long high quality large caps' trade. Whitney Tilson and Glenn Tongue's hedge fund T2 Partners further verify this with their latest bullish presentation on Anheuser-Busch Inbev (BUD), Microsoft (MSFT), and BP (BP). These are some of the largest companies in the world and T2 sees value in their shares. While value is the underlying theme, they are bullish on each respective company for very different reasons.

T2 Partners recently outlined their rationale with this presentation at the annual Value Investing Seminar in Italy. Keep in mind that T2 and many prominent hedge funds will be presenting their latest picks in October at the Value Investing Congress (special discount here). Now, Tilson and Tongue start their most recent presentation with Anheuser-Busch InBev (BUD). They cite that the company is a very high quality business with pricing power and a best of breed management team. A result of the merger between InBev and Anheuser-Busch, the company has density in major markets with high margins and high returns. Additionally, T2 points out valuation, writing, "Pro forma for deleveraging and synergies, (it) trades for 9.3x 2012 free cash flow." The company has beat its 30% EBITDA margin goal handily and has cut costs.

On Anheuser-Busch InBev, T2 Partners says, "you can currently buy BUD with an entry FCF yield of 10% for a business that can probably grow at GDP + inflation for a long time, giving you a long term IRR of at least 15% without any multiple expansion." We've previously covered a separate and specific T2 Partners presentation on BUD worth checking out as well.

Secondly, Tilson and Tongue argue that Microsoft (MSFT) is undervalued. They write, "MSFT's closing price on 7/12/10: $24.83, so assuming $2.40/share of FY 2011 earnings (midpoint of analysts' estimates and our own), plus $4 share in cash, here are possible stock prices and returns (plus there's a 2.1% dividend): 10x multiple = $28 stock = 13% return. 12x multiple = $33 stock = 33% return. 15x multiple = $40 stock = $61% return." They highlight the company has $4.24 cash per share, shareholder friendly capital allocation (buybacks & dividend), as well as a new product cycle in tow (Microsoft Office, Windows 7, etc). T2 Partners says that the rumors of Microsoft's demise are greatly exaggerated.

Lastly, Whitney Tilson and Glenn Tongue shift their views to the oil spill and a potential opportunity with BP (BP). Assuming a worst case scenario where BP owes $70 billion in liability, T2 Partners feels the company can easily earn its way out of these liabilities as its current operating income is estimated to be $34 billion in 2010 (BP has the fourth highest revenues and profits of the Fortune 500). Given the past precedents of oil spills, T2 also cites previous incidents including the Ixtoc blowout in 1979, the Gulf War oil spill in 1991, and the Exxon Valdez spill in 1989 where the negative impact for oil companies involved was less than feared. Overall, T2 feels that BP's balance sheet, cash flow generation, and recent asset sales to Apache (among other strategies) will allow them to weather this storm. You can find hedge fund T2 Partners' in-depth analysis of BP here.

And embedded below is the hedge fund's full presentation on these three large cap companies:



You can download a .pdf copy here.

To hear more investment ideas from T2 Partners and other hedge funds, be sure to check out the upcoming Value Investing Congress (with a special discount here). We've been covering a lot of the latest investment ideas from hedge funds disclosed in their most recent investor letters. For more recent picks, you can see the rest of T2's portfolio here and you can head to Perry Capital's latest letter here.

Hedge Fund T2 Partners: Updated Long & Short Positions, In-Depth Analysis of BP

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners recently released their June letter to investors. In it, we get an update on their performance but more notably, we see some of their long and short positions. Additionally, they've attached an in-depth analysis of BP plc (BP). As you know, we've previously outlined Tilson's reasons for buying BP. The extension included in the letter further elaborates on the analytical rationale behind owning shares of the oil spill giant.

Performance wise, T2 had a very impressive month of June, up 4.2% net of fees compared to the S&P 500 which was down 5.2%. T2 sits up 9.8% for the year net of fees, handily outperforming the S&P again. Since inception, T2 has returned 189.9% net of fees compared to only a 2.6% return for the index over the same timeframe.

Here are some of T2's current longs (in no particular order):

Berkshire Hathaway (BRK.A/B)
Iridium (IRDM)
Liberty Acquisition Corp warrants
BP plc (BP)
Winn Dixie (WINN)
Microsoft (MSFT)
Echostar (SATS)
dELIA*s (DLIA)
General Growth Properties (GGP)

Of their longs, we've noted numerous times how hedge funds are finding value in large cap names and Microsoft (MSFT) is the perfect example of this. While some argue they face tough challenges ahead, there's no denying its cheap valuation by historical metrics. For another value large cap play, we also highlight T2 Partners' position in Anheuser-Busch InBev (BUD) as we presented their analysis of BUD from the Value Investing Congress.

In terms of other longs, we first covered when Tilson bought BP and the basic gist of this play is that there's a reasonable chance the oil could stop flowing sooner than people expect and that clean-up costs will be less than imagined a year from now. In the letter below you can read his full assessment of the oil spill situation, company balance sheet, and more.

And here are some of the hedge fund's short positions that they've revealed:

Pacific Capital Bancorp (PCBC)
Homebuilders via the Homebuilder ETF (XHB)
For-profit education companies (no specific names mentioned, most likely a basket)
Barnes & Noble (BKS)
Boyd Gaming (BYD)
MBIA (MBI)
InterOil (IOC) puts

While we've known some of these stakes from when we previously looked at T2's short positions, the disclosure of their Pacific Capital Bancorp short is new. This ties into one-half of the long moneycenter/short regional bank trade that many hedge funds have on. Additionally, Boyd Gaming (BYD) is another new short we're seeing for the first time from Tilson and Tongue.

Embedded below is T2 Partners' June 2010 letter to investors:



You can download a .pdf copy here.

For more investment ideas from Tilson and Tongue, they'll be speaking at the upcoming Value Investing Congress in New York City in October along with many other prominent hedge fund managers including David Einhorn, Lee Ainslie, John Burbank and more. Market Folly readers can receive an exclusive discount to the event here.

Hedge Fund T2 Partners: Bearish on Housing, Bullish on Beer (Value Investing Congress Presentation)

Today we're covering in detail the recent presentation from Whitney Tilson and Glenn Tongue of hedge fund T2 Partners from the Value Investing Congress. Since inception, T2 is up 184.4% compared to an S&P 500 return of 17.7% over the same timeframe. Earlier in the week we detailed notes from the Value Investing Congress and briefly touched on T2's presentation. Below we'll take an in-depth look as their speech centered on a duopoly of investment ideas: one long and one short. We'll start with T2's bearish stance on the housing market and their short position in homebuilders.

Housing Market

Hedge fund T2 Partners gave a bearish presentation on housing two years ago at the Value Investing Congress and they were back this time around with continued skepticism. In the near term, they felt that the government tax credit and the fear of rising rates has spurred buying activity in the marketplace. However, they are quick to point out shadow inventory that lurks in waiting. The current housing overhang is around 7 million homes, and that doesn't include the 300,000 new defaults that occur each month.

Of the defaulters who haven't made a payment in a full year, 23.6% still have yet to be foreclosed on. Interestingly enough, T2 also notes that homes with negative equity are a much bigger driver of defaults than those affected by unemployment. The mortgage crisis is now being driven by underwater borrowers. This differs from the previous scenario where default was driven by resets. They also present a hypothetical scenario that if house prices were to drop an additional 10%, we'd see an increase of 56% more underwater homeowners.

It's clear we're still not out of the woods here yet. While most wouldn't argue with that statement, the numbers are pretty frightening. A weak housing market was ultimately one of the main contributors to the weak economy. As such, the American economy can't truly be repaired until the housing market itself is repaired. Thus, T2 Partners is short the industry via the iShares Dow Jones US Home Construction Index, ticker ITB. You can read more specifics regarding their short in the presentation at the bottom of the page. T2's presentation is a stark contrast to that of hedge fund Ellington Management's who as we covered earlier are bullish on housing.

Long position

Whitney Tilson and Glenn Tongue also presented an investment idea on the long side: Anheuser-Busch InBev (BUD). Their presentation entitled, 'Return of the King' focuses on how the merger between the two previous entities has created the largest global brewer which is seeing huge beer volumes, revenues, and EBITDA. Their hedge fund's investment thesis on BUD centers on the fact that this is a best of breed business with pricing power and high margins in major markets. On the valuation side of things, BUD trades at 8.5x 2012 free cash flow.

The company has a very wide moat with attractive returns on capital and they are able to generate high EBITDA margins through regional economies of scale. Not to mention, in Anheuser-Busch InBev's top 31 markets, they are #1 or #2 in 25 of them, as they have effectively gobbled up tons of market share. And, one intriguing fact about the company: they are also the largest bottler of Pepsico products outside of the US. Overall, Tilson and Tongue think shares are worth anywhere between $79 and $91 over the next two years. This position joins T2's ever growing portfolio of undervalued blue chip stocks.

Embedded below is hedge fund T2 Partners' entire presentation from the Value Investing Congress:



You can download a .pdf here.

In terms of their general stock market stance, Tilson and Tongue feel that the market is likely range bound as interest rates are low but P/E multiples are high. They don't necessarily see how a sustained bull market can occur in the near future. For more coverage of the Value Investing Congress, be sure to check out notes from day one as well as a summary of day two's presentations as well. Lastly, check back here daily as we'll be posting up more in-depth research from the event.

Overall, a well-illustrated set of ideas from Tilson and Tongue. For more on their hedge fund, we've covered T2 Partners' short positions, Tilson's explanation of their short in LULU, as well as T2's annual letter.

Value Investing Congress: Notes From Day 2

Thanks again to the Value Investing Congress who has been posting updates from the event on Twitter (make sure to follow us as well), we're able to present you with aggregated notes of the presentations. Yesterday we posted up notes from the first day of the Value Investing Congress and now we're covering day two of the event. Today we'll detail the investment ideas from Eric Sprott (Sprott Asset Management), Whitney Tilson & Glenn Tongue (T2 Partners), Lei Zhang (Hillhouse Capital Management), Tom Russo (Semper Vic) and David Nierenberg (D3 Funds).


Eric Sprott of Sprott Asset Management: Eric Sprott unsurprisingly gave a presentation on investing in precious metals. As we've covered on the site before, Sprott launched a physical gold trust and has stakes in various miners. He notes that we live in a world where governments continually spend money to boost GDP and that it is a race to the bottom in terms of currency devaluation. Currently the US dollar is winning that race but it 'may not win forever.' Overall, he says to beware of fiat currencies. You'll remember that fellow hedgie John Paulson started a gold fund as a way to bet against the US dollar. As a gold bull, Sprott's two favorite words are 'quantitative easing.' His specific investment idea was East Asia Minerals Corporation which he thinks could be a '10-bagger or more' due to gold reserves discovered. You can view all our past coverage on Sprott's firm here.


Whitney Tilson & Glenn Tongue of T2 Partners: These two gentlemen presented the case for their new long: Anheuser-Busch InBev (BUD) which is trading for 8.5x 2012 free cash flow. They note it is an addition to their ever-growing portfolio of undervalued blue-chip companies. Tongue says to look at BUD's free cash flow net of AmBev minority interests, synergies, deleveraging and 50% of Modelo's free cash flow. He thinks the market is also unfamiliar with the management story behind the company and equates it to the story of Rose Blumkin at Nebraska Furniture Mart.

Before their investment idea, Whitney Tilson's talk focused on how the market is range-bound as the S&P trades at 20.4x inflation-adjusted trailing earnings, above the average of 16.3x. As he has touched on in the past, Tilson believes housing still has more pain ahead as 24% of homeowners who haven't made a payment in a year have still not been foreclosed on. This represents a large amount of inventory yet to hit the market. Tilson also notes that the mortgage market has essentially been nationalized and that housing prices are well below the peak but still above levels in year 2000. He also recently appeared on CNBC where he outlined his bullish thoughts on BUD and talked about his short position in the homebuilders and his short position in Palm. Embedded below is the video of his recent appearance (email readers will need to come to the site to view the video:



Keep in mind that we've detailed T2's short positions before for those of you wanting a closer look and Tilson recently explained his short in LULU as well. For more insight on Glenn Tongue & Whitney Tilson's portfolio, head to T2 Partners annual letter.


Lei Zhang of Hillhouse Capital Management: Zhang started his firm with $30 million and now manages $4 billion, the largest hedge fund in China. Hillhouse has seen extraordinary performance, returning 52% annualized since inception in August of 2005. Zhang typically runs a concentrated portfolio and uses a team based research process to perform fundamental bottom-up research on companies. Zhang likes to focus on the people and teams behind the business and usually holds long positions 3-5 years. Interestingly enough, Zhang is currently in 50% cash and only adds 3-5 positions each year.

Currently, Hillhouse is negative on the shipping industry. Overall, Zhang dislikes small cap plays and sees very common investment mistakes in China, including investors with very short-term timeframes and over-excitement regarding short-term growth. Ironically, Zhang thinks concentrated bets are often a common investing mistake in China, yet Hillhouse runs a concentrated portfolio of their own. Clearly that strategy has served them well though, just look at their returns. Zhang's specific investment idea was the B shares of Changyu Corporation, a Chinese wine company that had a return on equity of 35% in 2008. He notes that there is little regulation on alcohol in China and no license is needed. On the short side, he likes focusing on 'frauds' which is a pretty obvious statement.


Tom Russo of Semper Vic Partners: Russo's talk centered on global value investing and the premise that international markets are very attractive due to emerging market growth. He allocated a lot of capital there during the crisis in 2008 when everything collapsed. In particular, Russo mentioned that Nestle can invest large amounts of money in emerging markets and see high rates of return. Pernod Ricard is one of the leading brands around the globe and was the top shorted stock on the Euronext in 2008. He likes their leadership in China especially. Lastly, Russo touches on SABMiller commending them for their long-term focus as they have burdened EBITDA margins in Africa in order to make investments.


David Nierenberg of D3 Funds: Nierenberg's firm takes concentrated positions in microcap growth companies seeking to constructively work with management. He likes emerging markets as six of the nine public companies he owns have exposure there. In particular, D3 Funds holds RadiSys (RSYS), an embedded computing company that has a strong balance sheet with $3+ per share net cash and is only tracked by two analysts. While current revenues have been stagnant, 'next generation' revenue is growing rapidly. By Q2 of 2010, RSYS will have outsourced 100% of its production and sees a 3 year earnings compounded annual growth rate (CAGR) of 39%. Additionally, Nierenberg's partner Cara Denver mentioned that D3 owns 18% of Move Inc (MOVE) and that their thesis is still intact.


Thanks again to the VIC for posting their Twitter updates. Make sure to also check out Value Investing Congress notes from the first day and then stay tuned for more hedge fund portfolio tracking here on Market Folly daily.