What We're Reading ~ 2/7/18

George Soros remarks at the World Economic Forum [George Soros]

It's hard to predict how you'll respond to risk [Collaborative Fund]

How delivery apps may put your favorite restaurant out of business [New Yorker]

Older piece but interesting: Disney as a service [Redef]

QVC plans to survive Amazon and escape the cable TV death spiral [Bloomberg]

Why one firm passed on investing in Ecolab [Intrinsic Investing]

A new mental model for investing [MicroCapClub]

Germany is still obsessed with cash [Bloomberg]

Why Rimowa rules the luggage carousel [FT]

Investing in UK retailers: bargains or basket cases? [FT]

The new robot revolution in manufacturing [WSJ]

Ikea's success can't be attributed to one charismatic leader [HBR]

The American sedan is dying, long live the SUV [Bloomberg]

Like great coffee, good ideas take time to percolate [FT]

Greenlight Capital Q3 Letter: New Stakes in HPE, Tempur Sealy, Micron

David Einhorn's hedge fund firm Greenlight Capital returned 6.2% in the third quarter and is now up 3.3% year-to-date.  Their third quarter letter outlines they had average exposure of 118% long and 73% short.

At the end of Q3, Greenlight's top five positions (alphabetical order) were AerCap, Bayer, CONSOL Energy, General Motors, and gold.

New Positions in Hewlett Packard Enterprise, Tempur Sealy, Micron

The letter highlights that they established a few new positions.  First, they entered Hewlett Packard Enterprise (HPE) shares.  They see earnings of $1.40 to $1.70 over the next few years as the company recently sold its outsourced services and software businesses.  They bought at $13.29 per share.

Second, they re-entered a previous holding: Micron Technology (MU).  They feel the DRAM market has improved as have the company's earnings, though think investors are underappreciating the improvements.  They bought around $29.21.

Thirdly, Einhorn's firm entered Tempur Sealy (TPX).  We posted Einhorn's presentation on Tempur Sealy from the GIBI Dallas Conference recently as well.

Other interesting notes: they covered their short of Best Buy (BBY), closed their longs in PVH and Axiare Patrimonio.

Embedded below is Greenlight Capital's Q3 letter:



Credit to ValueWalk who posted it first.

For more hedge fund letters, we also posted up Third Point's Q3 letter here.

Notes From Great Investors Best Ideas Conference (GIBI) Dallas 2017: Ackman, Einhorn & More

The 11th annual Great Investors Best Ideas (GIBI) Dallas Investment Symposium just took place where managers shared investment ideas to benefit The Michael J. Fox Foundation for Parkinson's Research and Vickery Meadow Youth Development Foundation.  Below are some brief notes on the event:


Notes From GIBI Dallas Conference 2017

David Einhorn, Greenlight Capital

Still owns a huge position in General Motors (GM) but has been trimming it since it's grown too large (risk management, position sizing, etc).  Still his largest position by a longshot though.  Still thinks it's very cheap and points to an opportunity for a new shareholder base to get into shares.  Likes they've gotten rid of its riskiest international business and is investing in autonomous cars and electric vehicles: the future.

He also likes Tempur Sealy (TPX).  Thinks estimates are way too low (notes that management's incentives are way higher).  The company had a dispute with Mattress Firm and stopped selling its mattresses there.  Despite that, customers still actively sought out the TempurPedic brand, so the co is replacing its lost Mattress Firm sales elsewhere at higher margins.  Thinks there's also a reasonable chance MF comes back to them since MF has lost sales.

Einhorn said that his 'bubble basket' of shorts in highflying tech stocks like Amazon and Tesla are valued like profits don't matter ... ever.  He says eventually people will wake up and profits will matter and their stocks will crater.  He also pointed to somewhat of a cult following status that is attached to Tesla's stock with all the hype that Elon Musk continuously builds with various projects.  There's around 30 stocks in Einhorn's bubble basket.   He noted he owns a Tesla, but also points out that the company probably lost $20-30k selling it.  Says company hasn't figured out how to make cars profitable on a unit basis.  You can also read Greenlight Capital's Q2 letter here.


Bill Ackman, Pershing Square Capital

Pitched his newest long: Automatic Data Processing (ADP).  Has an activist position.  Thinks it's a quality business: simple, not capital intensive, secular tailwinds (sees lots of growth ahead).  Automating employees.  Ackman thinks the stock's a double.  We've posted Ackman's presentation on ADP previously.

Also mentioned the GSEs he's involved with: Fannie Mae & Freddie Mac.  Still owns and thinks there's huge upside there.  He originally pitched these plays three years ago at the same conference.  Thinks they will eventually trade multiples higher of where they are now.

He's still short Herbalife (HLF) and has lost millions on the bet as the stocks' up around 40% from his average short price.  Said that of the risk factors considered for the position, Carl Icahn coming in and buying 20+% of the company wasn't one he considered.

Noted he still owns Howard Hughes (HHC) and while he doesn't see any immediate catalysts, thinks it's a long-term play as a high quality business.

Says average investor can be plenty concentrated with 10-15 holdings.  Biggest mistake of his career?  Not selling when new information emerged that didn't jive with his investment thesis.  You can read Pershing Square's Q2 letter here.



Tom Russo. Gardner Russo Gardner

Spoke about global brands and various companies still controlled by the founding families.  His best idea was the company hit with a scandal and PR crisis: Wells Fargo (WFC).  Previously he had noted how his WFC stake has remain unchanged (around 6% of his assets) and that he thought the company simply became too fixated singly on one variable (cross-selling) which lead to a bunch of accounts being opened in customers names.  The company now suffers from poor optics but on a risk level, direct financial harm has been modest and he has faith in the legal process.



Andrew Wellington, Lyrical Asset Management

A couple of picks:  Flex Ltd (FLEX), co is seeing double digit growth in its bottom line and 50% of FCF going to shareholders.  Trading around 12x earnings.

Affiliated Managers Group (AMG): asset management play, owns equity stakes in boutique management firms.  Says they own really good managers.  Trading around 12x NTM earnings.



Van Hoisington, Wasatch-Hoisington US Treasury Fund

He concluded that we're heading to a recession as the Fed has restrictive policies already in effect and money and credit are slowing noticeably.  Structural impediments to growth are over-indebtedness globally as well as adverse demographics.  Thinks rates will stay lower. 



Jeanie Wyatt, South Texas Money Management

A few ideas: Citigroup (C) as a value play.  Thinks it could re-rate from almost 1x book value to closer to 1.4x.  Since the crisis the company has a better situation and less subprime.

KAR Auction Services (KAR):  notes 20% EPS growth, end markets that are accelerating as well.  Trading just over 22x next year's earnings but with a big opportunity ahead as various leases will be coming to term.

Electronic Arts (EA): video game stock that's benefited from going over the top (OTT) as it leads to higher margins than the typical video game distribution model of physical games, etc.  Accelerating sales growth.  Also sees new potential upside in e-sports. 

Vodafone (VOD): Stock has traded sideways but the company has improved in end markets.  Thinks it offers good downside protection as sales growth has accelerated.


For more stock picks from recent investment conferences, we posted up notes from the Sohn San Francisco Conference yesterday.

Greenlight Capital Q2 Letter: New Toshiba Position

David Einhorn's hedge fund firm Greenlight Capital is out with its second quarter letter.  During the quarter, they lost 4% and thus far for the year are down 2.8% net.  Their average exposure was 111% long and 79% short.

Their five largest longs in alphabetical order are: AerCap (AER), Bayer (Germany: BAYN), CONSOL Energy (CNX), General Motors (GM), and Mylan (MYL).

They also point out short positions in their 'bubble basket' include Amazon (AMZN), athenahealth (ATHN), Netflix (NFLX), and Tesla (TSLA) that have moved against them.

The letter walks through some of their thoughts on each.  While Greenlight is long one auto manufacturer (GM) and short another one via Tesla, they don't do pair trades.

Also, the letter highlights that Greenlight started a new long in Toshiba (Japan: 6502) and outlines their thesis there.

Lastly, they also note they've sold their longs in Altice and Time Warner (TWX), as well as covered their decade-long short position in the credit rating agencies and their short of Mallinckrodt (MNK).

Embedded below is Greenlight Capital's Q2 letter:

 

For more from this manager, be sure to check out Einhorn's presentation on shorting Core Labs.

Greenlight Capital's General Motors Presentation: Unlocking Value at GM

David Einhorn's hedge fund Greenlight Capital has put out a slide deck on its large position in General Motors (GM).  The presentation is entitled: "Unlocking Value at GM: Two Classes of Common Shares."

Basically, Greenlight has asked the company to change its capital structure in order to unlock 'substantial shareholder value.'  The hedge fund has proposed that GM distribute 'dividend shares' on a tax-free basis.

Greenlight concludes that, "Creating two classes of common stock will unlock GM's value by forcing the market to appropriately value the dividend and give credit for GM's earnings potential.

Regarding how the company responded to these ideas, CNBC's David Faber tweeted that "GM considered Greenlight proposal for and rejected after months of meetings with management and board - sources." 

He also tweeted:  "GM rejected Greenlight proposal citing potential loss of Inv grade rating, governance challenge and uncertain demand for new shares - sources."

Embedded below is Greenlight's presentation: Unlocking Value at GM:



You can download a .pdf copy here.

For more on this fund, be sure to also check out Greenlight Capital's Q4 letter where they drastically increased their GM position.

Greenlight Capital's Q4 Letter: Dramatically Increased General Motors Position

David Einhorn's hedge fund Greenlight Capital finished 2016 up 8.4% and has returned 16.1% annualized since inception in 1996.

Their fourth quarter letter examines how their portfolio is positioned now that Donald Trump is president and will be trying to change policies. 

Greenlight is long various US value stocks that could benefit from corporate tax cuts (AMERCO, CC, Dillard's, DSW), they're long companies that can benefit from repatriation of foreign cash (Apple (AAPL)), and they're long companies that can benefit from demand for consumer durables (General Motors (GM), a position in which they've "dramatically increased their position."

They're also short 'bubble basket' stocks (Netflix), oil frackers, and Caterpillar (CAT).

Turning back to their thesis on GM, Greenlight writes that, "While the bears have been screaming 'peak auto' for the last couple of years, we think a strengthening job market will sustain the current upcycle and lead to better than expected credit performance at GM's finance subsidiary.  While the bears also cite long-term concerns over self-driving cars, we see a huge intermediate-term opportunity in assisted-driving cars."

During the quarter, David Einhorn's firm also exited its positions in AECOM (ACM), Michael Kors (KORS), and Take-Two Interactive Software (TTWO).   They also covered short positions in FLSmidth (Denmark: FLS), Mead Johnson Nutrition (MJN), and Reynolds American (RAI).

At the end of 2016, their largest positions in alphabetical order were: AerCap, Apple, CONSOL Energy, General Motors, and gold.  Their average exposures were 106% long and 81% short.

Embedded below is Greenlight Capital's Q4 letter:



We've posted up a bunch of letters today, so be sure to also check out Third Point's Q4 letter as well as Howard Marks' latest memo.

Notes From Great Investors Best Ideas Conference (GIBI) Dallas: Einhorn, Pickens, Gabelli

Below are some notes from the 2016 Great Investors Best Ideas (GIBI) conference in Dallas, TX.  It featured prominent investors sharing investment ideas to benefit the Michael J. Fox Foundation for Parkinson's research and Vickery Meadow Youth Development Foundation.


Notes From Great Investors Best Ideas (GIBI) Dallas Conference 2016

David Einhorn (Greenlight Capital):  Likes Mylan (MYL), thinks the Epipen situation is overblown relative to the rest of their business as they're mainly in generic drugs.  "So the earnings that we're looking at in 2018 are in the low $6's and we think only about 25 cents of it comes from EpiPen, so you're gonna earn something in the high $5s, excluding EpiPen and the stock's today in the mid $30's."

Contrasted the situation to that of Mallinckrodt (MNK) which bought QuestCor, a formerly highly shorted hedge fund name.  Their Acthar Gel drug has raised prices from $40 in 2001 up to a whopping $40,000 a dose but you don't hear about it as much because less people use it but says they're more exposed to potential health care focus on lowering drug prices given Acthar is a much larger portion of MNK's profit. 

Thinks General Motors (GM) is cheap and can earn its entire market cap before Tesla turns a profit.  Laid it out as follows:  stock could fall 3/4 and still has enough to pay the dividend.  Another quarter of the earnings are stock buybacks so you're basically getting a 5-6% share reduction, a 5% dividend so you're almost getting a 11% return just by sitting around. 

Thinks the Rite Aid (RAD) deal closes and separately also sees upside in Chemours (CC).  You can view his thesis on Chemours in Greenlight's Q2 letter.

Talked about the active vs passive investing debate.  Noted that "It seems to me that passive money management strategies are fundamentally momentum strategies.  In other words, the more the stock goes up, the more it becomes weighted in the index.  The more it becomes weighted in the index, the more important it becomes.  It continues going up, it doesn't ever revert."  Also called stocks like Apple (AAPL), Herc Holdings (HRI), and CIT (CIT) 'very cheap stocks.'



Boone Pickens (BP Capital):  Sees oil at $60 by the end of 2016 and up to $70 by the end of next year.  Likes EOG Resources (EOG) as well as Pioneer Natural Resources (PXD). Says 'you can't miss' on the later, argued that the only thing that can mess up his thesis is a recession.  Says PXD has a huge amount of oil.  (In the past we've posted how David Einhorn has/had been short PXD.)  Pickens says he's up 300% this year



Mario Gabelli (GAMCO Investors): Likes Herc Holdings (HRI), recent spin-off from Hertz Global (HTZ),  as a play on infrastructure: thinks EBITDA margins widen up to 1000 basis points.  Says the biz is growing 4-5% and is a highly fragmented biz but with 3 major players (other two being Ashtead (LSE:AHT) and United Rentals (URI).  Thinks stock triples over next 5 years.  He also posted about HRI on his Twitter account here.



Andy Beal (Beal Financial): He was pretty bearish and argued that government policies are basically depriving them of potential investment opportunities and basically said to get out of everything.  Talked up rental real estate.



Lisa Hess (SkyTop Capital):  Formerly of Loews, now manages SkyTop.  Her pick was Constellium (CSTM) as a proxy for more use of aluminum in automobiles etc.



Caroline Cooley (Crestline Investors):  Long Shutterfly (SFLY).  Says they have 60% market share and likes it as a growth play.  Said she's not worried about competition from the likes of Amazon (AMZN) and others like Snapfish.  Cited Apple trying and failing to compete with a similar service.  Says SFLY earns ten times that of its next biggest competitor, giving them a huge advantage.  Likes new CEO Chris North (previously of Amazon UK) and says company has some potential partnerships in the works and has bought back stock in the past.



Ray Nixon (Barrow Hanley Mewhinney & Strauss):  Talked about active vs passing investing.  Argued Buffett could potentially buy Phillips 66 (PSX) around $100 per share.  We've highlighted how Buffett has been accumulating PSX.


For more coverage of other recent investment conferences, head to our notes from the Sohn San Francisco conference.

Greenlight Capital Q2 Letter: Long Chemours (CC)

David Einhorn's hedge fund Greenlight Capital is out with its Q2 letter.  They feel that the 'Brexit' won't be a significant economic event by itself.

Turning to specific stocks, Greenlight outlines its thesis on Chemours (CC), a recent spin-off from DuPont (DD). 

They note, "CC should benefit from the continued recovery of TiO2 prices.  Further, EU regulations are driving adoption of CC's next generation refrigerant Opteon, which should increase fluoroproduts profits.  Lastly, management can reduce costs and shutter unprofitable businesses now that the company is independent of DuPont.  We expect the stock to appreciate as investors refocus on the earnings power of the business, which we think will approach $2.00 in 2017.  Our overall average purchase price is $6.58."

The hedge fund also exited numerous longs during the quarter: Macy's (M), American Capital Agency (AGNC), Baxter (BAX), Oil States International (OIS).

They also covered short positions after the Brexit volatility, including: Intuitive Surgical (ISRG), Under Armour (UA), and United Rentals (URI).

At the end of Q2, Greenlight's largest disclosed longs (in alphabetical order) were: AerCap, Apple, CONSOL Energy, General Motors and gold.  Average exposure was 96% long and 69% short.

Greenlight's Q2 letter is embedded below:



H/T ValueWalk


For other recent hedge fund letters, we also posted up Third Point's Q2 letter here.

David Tepper's Latest Interview

CNBC's Kelly Evans sat down with David Tepper of Appaloosa Management at Carnegie Mellon University recently.

Tepper said that the ECB and China surprisingly eased but his firm has been cautious on the stock market because of margins and other things.

He said that, "You have to keep some cash on the sidelines, have a diversified portfolio."  He also noted he doesn't love the bond market right now.

On General Motors (GM), Tepper said that it's leveraged to the US economy and they're doing better than other folks in China.  He thinks management is doing a good job there.

Tepper also likes HCA (HCA) adding to the position recently as he thinks it's been hit too hard.

Embedded below is the video of Tepper's interview with CNBC:



If you missed it, be sure to check out Tepper's previous interview from a few months ago where he said he was "not as bullish as I could be."

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.

Greenlight Capital Q1 Letter: David Einhorn Cuts Net Exposure In Half

David Einhorn is out with Greenlight Capital's first quarter letter to investors.  Greenlight finished Q1 -1.7% net of fees.  While many investors will care more about Einhorn's equity picks, we think the more noteworthy takeaway is the fact that the hedge fund has cut net exposure in half from 30% down to 14% net long.

Greenlight writes, "Bottom up: short candidates are easy to find ... the opportunity set on the long side is quite constrained.  Top-down: Valuations are on the high side and earnings are in a precarious spot."

Einhorn then touches on the Federal Reserve, noting that, "How fast it tightens should be less important than the fact that it will tighten."

As far as individual equity moves go, Greenlight made the following adjustments: started new positions in AerCap (AER), Chicago Bridge & Iron (CBI), as well as re-entering General Motors (GM) shares.  They sold Aetna (AET), closed shorts in Safeway (SWY), Freescale Semiconductor (FSL), and Lorillard (LO).  However, they started a new short in Reynolds American (which acquired LO.)

Embedded below is Greenlight Capital's Q1 2015 letter with the thesis on their new investments:

What We're Reading ~ Analytical Links 2/11/15

Henry Singleton's five strategies for business success [ValueWalk]

A list of blogs/financial sites you should be reading [Morgan Housel]

A look at AutoCanada [Value Venture]

A pitch on Graham Holdings [Beyond Proxy]

Meditations on the Eurozone and secession [All About Alpha]

Investment Managers are human too [Squared Away]

Thoughts about risk and portfolio management [Value Venture]

The digital future of TV networks & the original series crunch [Media Redefined]

Zulily: the billion-dollar e-commerce company you know nothing about [Fast Company]

China's biggest problem [Joe Magyer]

Devaluation by China is the next great risk for a deflationary world [Telegraph]

General Motors: saved by the trucks [Economist]

Why Nordstrom's digital strategy works [HBR]

Amaya: is PokerStars a high-quality, high-growth business? [Alpha Vulture]

Greenlight Capital's Q4 Letter: New Positions in Micron, BP, & Anadarko Petroleum

David Einhorn's hedge fund Greenlight Capital returned 19.1% net in 2013.  Greenlight's fourth quarter letter to investors unveils their thesis on new positions in Micron Technology (MU), BP (BP), and Anadarko Petroleum (APC).

Greenlight likes Micron because the industry has started to act a bit more rationally and MU will buyback shares instead of building new factories.

Their BP stake is a play on increasingly shareholder friendly capital allocation policies as well and they think the company is worth $70 per share (it trades around $49 now).  

Additionally, their letter talks about some positions they've closed recently like Airbus Group (formerly EADS), and ThyssenKrupp.

At the end of 2013, Greenlight's largest positions in alphabetical order were: Apple (AAPL), General Motors (GM), Marvell Technology (MRVL), Micron (MU), and Vodafone (VOD).

Thanks to ValueWalk who posted up Greenlight's Q4 letter and you can view it below:




For more on Einhorn, we just yesterday revealed some more of Greenlight's recent portfolio activity.

And for more year-end hedge fund letters, head to Third Point's Q4 letter here.

Kyle Bass Long General Motors, Exits J.C. Penney Equity: Interview

In an interview with Bloomberg Television, Hayman Capital's Kyle Bass reveals that he's long General Motors (GM) and has exited his equity stake in J.C. Penney (JCP) but retains his debt position. 

The hedge fund manager also talked about Herbalife (HLF), noting that it generates significant cashflows and no debt.

He originally thought JCP could move higher with a turnaround from new management, but what he got wrong, he said, was the vendors and perception changing so quickly.  He's still long credit but doesn't own equity in the company.

Bass thinks GM can trade 40% higher in the next 18 months.  He says it's a catalytic time to be investing as the Treasury finally exits its stake and the company can initiate shareholder friendly actions.

The Hayman founder also said he didn't see anything interesting in US banks, but he would be betting against European banks, especially as a hedge against other European bets.  Bass mentioned he likes Vodafone (VOD).

Embedded below is Bass' interview with Bloomberg:



For more from this hedgie, head to Kyle Bass' macro debate with John Burbank.

What We're Reading ~ Analytical Links 12/4/13

On investment idea velocity [Dasan]

Mapping investor behavior [All About Alpha]

Should AT&T (T) buy Vodafone (VOD)? [FT]

Bullish thesis on Sears (SHLD) starting to show cracks? [Peridot Capitalist]

A write-up on Colfax Corp (CFX) [Brooklyn Investor]

Once cable's king, Malone aims to regain his crown [Dealbook]

Deflation fears stalk eurozone [The Guardian]

Stock funds lure most cash in 13 years as investors chase rally [Investment News]

Short seller: best opportunity in two decades [CNBC]

Treasury seeks an exit from General Motors (GM) by year-end [Dealbook]

Paper on the valuable asset of spectrum [SSRN]

Advice on careers, finance and life from Harvard Business School class of 1963 [HBS1963]

Clear Channel's Bob Pittman on the value of dissent [NYTimes]

David Einhorn's Q4 Letter: Greenlight Buys More Apple & Vodafone

David Einhorn's Greenlight Capital is out with their Q4 letter to investors via ValueWalk.  Greenlight returned 7.9% in 2012 and 19.4% annualized.

The key takeaways from Greenlight's fourth quarter activity include:

- Bought more Apple (AAPL):  They originally trimmed their position size in the third quarter, but as shares fell in Q4, they bought back some of their stake.  Einhorn has held AAPL for quite some time as he originally purchased around $248 and this seems to be the only other time he's added to the position.


- Bought more Vodafone (VOD):  This has also been a longstanding position for Einhorn under the thesis that VOD's ownership stake in Verizon Wireless is being undervalued.  We've also posted Eminence Capital's long Vodafone short Verizon pair trade thesis as well.


- Covered Pitney Bowes (PBI) Short:  Greenlight labeled this company a 'melting ice cube' due to facing secular challenges of declining US mail volumes.  Many hedgies have been short this name and we've also posted up how hedge funds have been shorting competitor Neopost as well.


- Sold Huntington Ingalls Industries (HII), Humana (HUM), Wellpoint (WLP), bought other managed care organizations (undisclosed).


Greenlight's top five positions at the end of the year were (in alphabetical order): Apple (AAPL), Cigna (CI), General Motors (GM), gold, and Vodafone (VOD).


Embedded below is Greenlight Capital's Q4 letter to investors:




For more on this investor. be sure to also check out Einhorn's short thesis on iron ore.

Frank Brosens: 3 Catalysts for Repricing of General Motors (Invest For Kids Chicago)

Next up in our notes from Invest For Kids Chicago is Frank Brosens of Taconic Capital.

Brosens' Thesis on the 'New' General Motors

•    There are 3 catalysts for the repricing of GM

•    (1) New management team 
o    Better capital allocation since going public in November 2010 with new CEO Dan Akerson (Private equity background)
o    Better capital allocation will lead to resurgence

•    (2) Administration willing to sell post election
o    Treasury stake (mid 40s cost basis) is goings to come to market
o    Overhang of would be gone.  Institutions would come back to the stock (including being added to indices)
o    32 billion cash until treasury sells stake (only need 20bn to run company) and have $10bn revolver.
o    Company could buy back half of treasury stake. (Boosts EPS 16%)

•    (3) Valuation is currently overly conservative assumptions (Brossens notes the stock could triple).
o    SAAR is improving and could hits 15 MM next year
o    30% of GM’s 2013 line-up is re-engineered and the refresh cycle is driver of profitability and market share
o    The 2013 GM lineup has many trucks (GM makes ~10K per truck sold).  This is significantly in excess of the last truck refresh cycle in which GM made $2 to 3K per truck. Overall, a $3.5 billion dollar incremental opportunity
o    Average car age on road is beyond 11 years
o    GM trades at a discounts on EBITDA basis to Ford, Toyota, and VW
o    By 2015 if the current EV to EBITDA multiple stays flat the equity price will be $67 and if the FCF multiple stays flat the stock could be worth $89

It's also worth pointing out that Greenlight Capital's David Einhorn pitched GM at the Value Investing Congress as well.


For the rest of the hedge fund presentations from the event, head to notes from Invest For Kids Chicago.

David Einhorn's Presentation on General Motors, Cigna, Chipotle & GMCR: Value Investing Congress

Continuing coverage, we're posting up notes from the Value Investing Congress.  Below are notes and the presentation of David Einhorn of Greenlight Capital.  His talk was entitled 'Kicking the Tires' where he covered a range of topics, but mainly pitched General Motors (GM) and Cigna (CI) as longs and Chipotle (CMG) as a short.

"Do your homework and kick the tires." It's not the answers that make you good in this business, it's the questions you ask. Talked about how Green Mountain Coffee Roasters (GMCR) was down 6% as he spoke during his presentation last year, but the point is it dropped right away, before people listened to the slides.  So he says you must do your own work.

Einhorn also mentions Herbalife (HLF), talks about him asking questions on the conference call. Because he said people were worried about the quarter.  Says he was quite surprised by the reaction.  Caris actually downgraded the stock based on the probability he was short. 

He mocks investors for not doing the work, but just trying to blindly follow him.    DO YOUR OWN WORK!  This is something we try to emphasize on MarketFolly.  Tracking hedge funds is a great way to find ideas, but only use it as a starting point.  Due diligence is key.


Einhorn's 4 Ideas This Year

1.  Long General Motors (GM): Remains an "ugly duckling" due to long investor memories, government ownership overhang and weak Europe division.

Bull case: Fixed cost structure improved. Pension risks overblown, unfunded liability may have narrowed by several billion, rising interest rates would help, too.  No required pension contributions until at least 2019.  Balance sheet cleaned up, brand quality improving across the board, improving pricing. $23.09, $42B, cash is 3/4 of the market cap.  $70B in tax shields; no taxes in US for a decade. EV is actually only $6B when you take these things out. $6.6B in EBIT this year, P/E depressed due to cash hoard earning nothing.  Consensus is too low, SAAR may be higher than street.

GM is #1 in China and growing faster than industry.  Europe is a problem and should restructure to at least break even by 2015. Government stake is an opportunity, not an overhang. US demand is 16M units:  Scrap is 13.2M units/year in a normal year. Ave age is now 11 years, up from 9 a decade ago.  5.5% scrap rate implies 19 year average life. Population growth alone is 2M units of annual demand. Recessions cause less vehicles per driver, but it rebounds as economy does.  This is 500k units/year. His SAAR is 16M units, not peak, but midcycle. Implies 315k incremental units for GM, $1.00 per share eps. 60% of units new in 2013/14 vs. 23% in the last 2 years. 2013 Cadillac ATS- "Esquire Car of the Year"

Does not believe European losses will persist indefinitely. $42B market cap, $32B cash, and $6B revolver.  So $38B total liquidity.  What should it do with its cash?  Government has 50M shares.  Repurchase of these is accretive, even at $30 per share, costs $15B.  $53 is break-even, so no sale will occur before election.  If Obama is re-elected, he may be willing to sell at a loss. Otherwise, they could still do a large open market buyback instead. 2014 "taxed" earnings could be $6 in 2014, $8 cash earnings.  This is midcycle, not peak result, so deserves a better multiple.


2.  Long Cigna (CI):  Lots of work. Have to understand HMOs, then Obamacare, then how it influences CI.  Then you have to understand their non-HMO businesses. Investors don't like HMOs now.  Earnings are hard to predict from Q to Q.  Obamacare scares investors.

Scary things: Humana (HUM), Wellpoint (WLP), Healthnet (HNET) all missed this year.  Obamacare: capped profits, risk of financial penalties 

Bull case: Secular growth, high barriers to entry, big players have scale already.  Still, ROE has been strong over time. CI is the best performer in the group.

Things that won't affect HMOs: Greek debt, Europe, China slowing, etc. They reprice annually so they always make money.  Obamacare is just "a homework problem" that can be analyzed. Also has Group Disability/Life and International business. 82% is non-risk bearing ASO business.  PBM is a potential high multiple sale GDL segment is consistent source of earnings despite weak employment trends. International is for multinational corporations' employees living overseas.

Trades at 7.7x 2013E, at a discount to sector which is cheap already.  You can see further comments from Einhorn on Cigna in Greenlight's Q2 letter.


3.  Short Chipotle (CMG):  Trades at 35x, nosebleed valuation. Average sector multiple is 22x. Compares to PF Chang, Boston Market.

Restaurant business:  low barriers to entry, Obamacare brings additional costs since they don't currently provide health care for employees, summer drought affects costs in coming periods.

The biggest near-term challenge: A resurgent Taco Bell (part of Yum Brands ~ YUM).  Most analysts think Taco Bell is low-end quick service restaurant, and CMG competes with higher end Panera.

He did a survey of CMG customers, and they actually visit Taco Bell almost as much.  Taco Bell SSS up 12% last year, while CMG missed. Taco Bell has more locations and cheaper menus. Taco Bell has decided to compete directly with CMG with their "Cantina Bell" menu which is almost exactly the same, but with 35% lower prices. 2/3 of CMG customers that tried Cantina Bell thought it was good; almost 1/2 liked it as much or more. Makes sense, Taco Bell has more money, locations, and can just add the Cantina Bell menu items to blunt CMG competition. Lots of insider selling as well.


4.  Short Green Mountain Coffee Roasters (GMCR):  He believes there is still accounting fraud. CEO said they had an investigation, but only took 23 days. Cites the SBUX "Verismo" system. Agreement for K-cups with SBUX is vague- how long?  CAPEX/sales is very high, 9-11-13% of sales, vs. industry average of 3.3% He also says a price war is coming, and GMCR generated no FCF during it's years as a monopolist.  Thinks the stock has further downside.  You can view Einhorn's presentation on GMCR from last year if you haven't seen it.


Question & Answer Session:

Does he like Yum Brands (YUM)?  Likes Taco Bell, but KFC in China may hurt too much. Not long.

Future price for CMG?  He says "we don't have to worry about that, we just think risk-reward favors the downside." GM, is government stake affecting sales?  He says they will sell sooner rather than later, and they are a passive role.  Chevy Volt obviously not going well and it's a tiny part of GM's business.

Anything on Moody's (MCO)?  Still thinks it’s a short, lawsuits are very persistent.

What about Apple (AAPL)?  His opinion unchanged

He's short steel, which he says is a hedge in a way, and lower steel prices are good for autos.

On Cigna (CI)?  "Less than 1% of the business is individuals"

Comments on St. Joe (JOE)?  Says they finally had a conference call, sales are zero, says you should listen to it.  Management, other than CFO, were too busy to take questions.


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

(.PDF coming soon)

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

David Einhorn Sells Best Buy & Dell, Buys Cigna & Coventry Health: Q2 Letter

David Einhorn's Greenlight Capital is out with their Q2 2012 investor letter and Dealbreaker has it posted.  In it, they reveal that they no longer own Best Buy (BBY) or Dell (DELL).  Additionally, they started new stakes in Cigna (CI) and Coventry Health Care (CVH), playing the managed care sector.  Here are some excerpts from the letter:

On Best Buy:  "We thought that the core debate was whether or  not the company could compete with Amazon.  The answer at this point is that maybe it can and maybe it can’t.  (Despite the consensus view, our store surveys have repeatedly shown  that there is no price benefit for consumers to browse at BBY and then purchase at Amazon.)   There has been some deterioration in BBY’s domestic performance, which we attribute to a  lack of a “must have” consumer electronics  product, rather than  an erosion of BBY’s  competitive position.  While we held the shares, three unexpected problems emerged:  First,  BBY depleted $1.3 billion of its cash resources by paying a double-digit multiple for  Carphone Warehouse’s share of the Best Buy Mobile profit stream.  The market promptly revalued those earnings to BBY’s mid-single digit multiple.  Second, in the most recent quarter,  BBY’s international profits collapsed.  In particular, comparable sales in its Chinese business  fell 28% as the Chinese economy appears to have hit a wall.  Finally, the company dismissed  its CEO over his personal conduct, and also removed the Chairman for failing to respond  properly to the CEO’s misbehavior.  As a result, the company has an interim CEO and is  trying to come up with a strategy.  We worried  that this could lead to additional business  disruption so we exited with a loss."


On Dell:  "We had thought that the growth in the non-PC business would be enough to
offset the deterioration in the PC business.  The non-PC growth was smaller than we’d hoped
and the PC deterioration was worse than we’d anticipated.  While DELL has a good balance
sheet, it appears likely that management will try to use much of the cash to try to buy its way
into better businesses.  At a minimum, this will erode some of the value cushion that the cash
balance creates."


On Cigna:  "CI is a managed care company with three primary divisions:  Cigna HealthCare, Cigna Group  Disability and Life, and Cigna International.  Cigna HealthCare, which comprises about 70%  of CI’s profits, offers medium and large companies traditional risk-based insurance, in  addition to administering plans for those that prefer to self-insure.  Cigna HealthCare recently  bought HealthSpring to enter the fast-growing Medicare Advantage market.  Cigna Group  Disability and Life is a low-growth, stable  business. Cigna International, which provides  insurance policies for individuals, as well as insurance and administrative services for multinational companies and governments, is growing at more than 20% per year.  We believe that  CI deserves a higher multiple because the plan administration business is a service business  that doesn’t take risk, and the other divisions do not warrant discounted values.  Our purchase  price of $45.42 per share valued CI at less than 8x estimated 2012 EPS and approximately 6x  our forecast of post Obamacare 2014 EPS.  CI shares closed the quarter at $44.00 each."  Note: CI has since fallen further and you can currently buy it at cheaper prices than Greenlight.


On Coventry:  "CVH is a regional managed care company with operations in the mid-Atlantic, Midwest and  parts of the South.  The company offers commercial risk-based insurance and has an  expanding business in the government-sponsored Medicaid and Medicare programs.   Problems with a recently-acquired three-year contract to provide managed care services to the  Medicaid population in Kentucky caused the company to  significantly reduce earnings  guidance for 2012.  This led to a large drop in the stock price.  We believe the issues related  to the Kentucky contract are manageable and finite, and CVH will return to breakeven or a  profit on this contract in 2013 from a loss this year.  Our average purchase price of $31.22  represents 8x our forecast  for 2014 earnings net of $6 per share of cash and reflects our  estimate of the negative impact of Obamacare.  CVH closed the quarter at $31.79 per share."

We've also recently highlighted some of Einhorn's thoughts on Apple, Green Mountain and Amazon.

Einhorn's top five largest long positions at the end of the quarter (in alphabetical position) were: Apple (AAPL), General Motors (GM), gold, Marvell Technology (MRVL), and Seagate Technology (STX).  We highlighted how Greenlight was adding to their STX position last month.

Instead of waiting for a copy of the letter, we'll send you over to Dealbreaker who already has it posted here.

Goldman Sachs VIP List: Most Important Stocks To Hedge Funds: Q1 2012

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor report.  In it, they reveal the latest VIP list of 50 stocks that are most important to hedge funds.  These are the positions that appear most frequently in the top 10 holdings of fundamental focused hedge funds.

This quarter, they've also released a new list of very important short positions to hedge funds which we've posted up as well.

Goldman's VIP list of the most important holdings is accessible on Bloomberg via < GSTHHVIP >.  It has "outperformed the S&P 500 by 55 bp on a quarterly basis since 2001."

Goldman Sachs VIP List (Q1 2012)

Stock: Number of funds with stock as top 10 holding

1. Apple (AAPL): 106
2. Google (GOOG): 73
3. Express Scripts (ESRX): 56
4. Microsoft (MSFT): 46
5. Qualcomm (QCOM): 38
6. Citigroup (C): 31
7. General Motors (GM): 29
8. Priceline.com (PCLN): 29
9. JPMorgan Chase (JPM): 27
10. Liberty Media (LMCA): 26
11. Delphi Automotive (DLPH): 24
12. BP (BP): 23
13. Pfizer (PFE): 23
14. Tyco (TYC): 22
15. Visa (V): 21
16. Yahoo (YHOO): 21
17. LyondellBasell (LYB): 20
18. Anadarko Petroleum (APC): 19
19. Bank of America (BAC): 17
20. Ford Motor (F): 17
21. WellPoint (WLP): 17
22. American International Group (AIG): 16
23. Charter Communications (CHTR): 16
24. eBay (EBAY): 16
25. Rock-Tenn (RKT): 16


It's no surprise that Apple (AAPL) is the most widely owned top position amongst fundamental hedge funds.  But despite that, Greenlight Capital's David Einhorn argued hedge funds actually have less than 2% of assets in his Ira Sohn conference presentation.  We've also posted Dan Loeb's thesis on AAPL as he was a big buyer of shares.

Both Tyco and Priceline were featured in the equity analysis section of our Q4 2011 Hedge Fund Wisdom newsletter due to heavy ownership by top funds.  TYC is an event-driven play while PCLN is a huge growth and international play.


Here's the rest of Goldman's VIP list:

26. Seagate Technology (STX): 16
27. Berkshire Hathaway (BRK.B): 15
28. Cisco Systems (CSCO): 15
29. Equinix (EQIX): 15
30. Hertz Global (HTZ): 15
31. Liberty Interactive (LINTA): 15
32. Pioneer Natural Resources (PXD): 15
33. Visteon (VC): 15
34. Valeant Pharmaceuticals (VRX): 15
35. Wells Fargo (WFC): 15
36. Baidu (BIDU): 14
37. Dollar Thrifty (DTG): 14
38. Hess (HES): 14
39. Mastercard (MA): 14
40. News Corp (NWSA): 14
41. Williams Companies (WMB): 14
42. Barrick Gold (ABX): 13
43. CIT Group (CIT): 13
44. Capital One (COF): 13
45. Calpine (CPN): 13
46. Devon Energy (DVN): 13
47. EMC (EMC): 13
48. Hewlett Packard (HPQ): 13
49. Illumina (ILMN): 13
50. Salesforce.com (CRM): 12

Of the above, we've previously highlighted why Passport Capital likes LINTA.  And in the brand new issue of our Hedge Fund Wisdom newsletter, we've analyzed Equinix (EQIX), a big new position by Philippe Laffont's Coatue Management and John Thaler's JAT Capital.

Some of the stocks on the list are brand new additions as enough hedge funds boosted their positions in Q1: ABX, AIG, BRK.B, COF, CPN, CRM, DVN, EBAY, EMC, EQIX, F, HES, HTZ, ILMN, RKT, WLP.


Be sure to also check out Goldman's brand new list of hedge fund very important short positions.