Jeff Ubben's Interview with CNBC

CNBC's Kelly Evans sat down with activist investment manager Jeff Ubben of ValueAct Capital recently.  Here's a summary of his latest thoughts:


On his recent portfolio activity: "We have been selling a number of our companies where we have been there, done all we could, the stocks are fairly valued... and it's been hard to redeploy that."  They sold some Adobe, MSCI, Microsoft, and Motorola Solutions.

He notes the only compelling investment they've found value in has been Rolls Royce (RR.L).

On valuations:  He notes that last valuation cycle the bubble was largely public and this time around, more and more companies are private so the bubble could burst slower he guessed.

On TwentyFirst Century Fox (FOX/FOXA): He likes the transition from old media to new media and wants to 'get rid of the middleman' by going direct to consumer.  He thinks James Murdoch is terrific and can lead the change.

On his stakes in Halliburton (HAL) / Baker Hughes (BHI):  If the deal closes, he thinks ValueAct will do really well there.  If it doesn't close, he says people have kind of forgotten what happens to Baker's balance sheet with receiving a break-up fee.

On Valeant (VRX):  This interview was shown yesterday and today VRX is down 47% on guidance cut and default worries.  But Ubben's comments at the time were that CEO Michael Pearson is "incredibly driven."  ValueAct spearheaded the effort to place him as CEO many years ago.  Ubben also said that "we're solving problems (at the company) as we speak" but also noted that "we haven't been able to control the narrative at all."  ValueAct has owned VRX for years and at one point it was a hugely successful play for them, but with shares plummeting this year, they've basically come close to round-tripping their gains.

Embedded below is the video of Ubben's interview:

ValueAct Capital Reduces Valeant Pharmaceuticals Stake

Jeff Ubben's activist investment firm ValueAct Capital today released a statement indicating that they've reduced their Valeant Pharmaceuticals (VRX) position:

"ValueAct Capital Management, L.P. announced today that it has sold 4.2 million shares of Valeant Pharmaceuticals International, Inc. (NYSE: VRX; TSX: VRX) in brokers' transactions on the NYSE.  ValueAct Capital's CEO Jeffrey W. Ubben said: "Mike Pearson and the Valeant team's exceptional performance have once again caused our investment in Valeant to grow in value to well above 20% of our funds' assets, and we are again compelled to reduce our position to rebalance our overall portfolio.  We have owned Valeant shares for over nine years and have sold shares on three previous occasions for the same portfolio management purposes. After this sale, our investment in Valeant will continue to be well in excess of $3.0bn and will be one of the largest investments in our funds. I look forward to continuing to work with Mike and my fellow members of the Board of Directors."

After the sale, ValueAct should still own over 15.1 million shares.  ValueAct was instrumental in bringing Pearson on board as CEO and has benefited greatly.  This has been a consensus hedge fund favorite stock for some time, with Bill Ackman acquiring a VRX stake recently as well.

Valeant also announced a new CFO, Robert Rosiello.  He's a former McKinsey M&A executive and should fit right in given Valeant's acquisitive strategy (Pearson also used to previously work at McKinsey).


Where Does ValueAct Allocate The Proceeds?

The question now becomes: where does ValueAct put this freed up capital to work?  While they could always initiate a new position, or keep it in cash for the time being, it also wouldn't be surprising to see it allocated to some of their existing stakes given where shares of some of these companies currently trade.

The first option is 21st Century Fox (FOX).  They've previously purchased shares numerous times when trading at $32.50 or below and FOX is currently hovering close to those levels.  ValueAct just added to their FOX position in late May and could look to make it even larger after accumulating their position over numerous quarters.  They also just filed an amended 13D on Fox today which shows that their ownership stake is in an LP named Volpe Velox, which is Latin for 'quick fox.'  ValueAct currently owns over 43.5 million shares of FOX, or 5.5% of the company.

CNBC's David Faber today reported that Rupert Murdoch is set to step down as CEO (but retain his role as Executive Chairman) and son James Murdoch will take the helm, with brother Lachlan Murdoch assisting.  It's unclear if this reorganization would occur this year or next and the company's board is set to review succession plans soon.

Faber also notes that COO Chase Carey is supposedly stepping down from his role as well.  There seems to be some uncertainty as to the timing though it's possible Carey will remain with the company in an advisory role.  Some investors will be dismayed by Carey's potential departure or reduction in role.  Others could view it as a potential opportunity for FOX to bid for Time Warner (TWX) again in the future.  With ValueAct's activist involvement behind the scenes here, it will be interesting to see what's next for the company.

Another place ValueAct could allocate their VRX proceeds is to Halliburton (HAL) / Baker Hughes (BHI).  They were out accumulating shares of both during the first quarter and their exposure to both combined was almost $3 billion as of the end of Q1.  Both shares are trading higher than levels in Q1 though, as ValueAct looks for the companies to combine.

A third option for Ubben's firm is Precision Castparts (PCP).  As our Hedge Fund Wisdom newsletter highlighted, ValueAct initiated a brand new stake in the company during the first quarter.  While this position is much smaller than their others, PCP shares are still currently trading around levels where Ubben's firm could have been buying in Q1.  So they could easily ratchet up their stake around similar prices now.  Not to mention, numerous other prominent investors were buying PCP in Q1, including Berkshire Hathaway, Third Point, Farallon Capital and more.

Another potential option is shares of WESCO (WCC).  ValueAct initiated a small position in the company during the first quarter.  However, shares are trading slightly higher than Q1 levels now.

While the above seem like the most likely to garner incremental capital, ValueAct also owned stakes in the following companies as of the end of Q1 (in descending order of position size): Microsoft (MSFT), CBRE (CBG), Adobe (ADBE), Motorola Solutions (MSI), Willis Group (WSH), Agrium (AGU), Allison Transmission (ALSN), MSCI (MSCI), and Armstrong Worldwide (AWI).

For more on ValueAct, be sure to check out partner Mason Morfit on ValueAct's approach and Microsoft.

Lee Cooperman Says Market Fairly Valued, Talks Stocks He's Been Buying (Interview)

Lee Cooperman of hedge fund firm Omega Advisors made an appearance on CNBC today to talk about what he's been buying and what his portfolio looks like.

Cooperman thinks the market is fairly valued right now and that the "Fed will have to remain friendly." He thinks the rest of the year will be determined by which valuation camp wins out.

He thinks a radical change in Fed policy or a recession would cause a drop in the market, but he's not terribly worried about either of those scenarios.

At the same time, he points out how many investors have de-risked drastically and are underinvested.  He says, "what the wise man does in the beginning, the fool does in the end."


Stocks Cooperman Likes

Cooperman mentioned Thomas H Lee Credit (TCRD), a mezzanine lender that yields over 9% and he thinks the dividend goes higher.

We recently posted up excerpts from Omega's Q1 letter if you missed it where he talks about some of his other stock picks.

He likes to buy MLP's when they're trading below net asset value and especially if he can get a decent yield.  He thinks Linn Energy (LINE) has assets worth "in the area of 40."

Cooperman has also sued Tetragon Financial and he believes management should be barred from the industry due to 6 years of bad governance in his opinion and possibly unlawful acts.  He still thinks the stock is undervalued (he owns 14 million shares of it and he started buying in 2009 back during the financial crisis).  In sum, he feels it's solely a management problem.

The Omega Advisors man also talked about Sprint (S), saying he bought it at $2 and then again at $7 and likes that there were 2 interested parties in the company (Softbank and Dish Network), but it looks like.  He said he'll tender 80% of his position, but if it trades at the right price, he'll get back into that chunk of his position.

Cooperman has owned Dish (DISH) for six years and he said it's a mature business and he thinks it'd be worth more with Sprint than without it.  He likes management there.

The hedge fund manager noted that he's "very bottom-up" and some things Omega has been buying recently include Express Scripts (ESRX), Halliburton (HAL), Transocean (RIG), Qualcomm (QCOM), Motorola Solutions (MSI). Sandridge (SD), and Chimera (CIM).


Embedded below is the video of Cooperman's 18-minute interview:



For more on this manager, check out Lee Cooperman's thesis on Covidien (COV) and Sirius XM Radio (SIRI).

Jeff Ubben's Favorite Investment Ideas: Value Investing Congress

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

Ubben's Stock Ideas

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

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

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

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


Other stocks he mentioned:

Adobe (ADBE)

CR Bard (BCR)

Sara Lee

Halliburton (HAL)



Learning From His Mistakes:

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

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


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





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

Delivering Alpha Best Ideas Panel: Cooperman, Chanos, Feldstein & More

CNBC and Institutional Investor's Delivering Alpha Conference is going on today and we wanted to aggregate the highlights.  The "best ideas" panel included Omega Advisors' Leon Cooperman, Kynikos Associates' Jim Chanos, BlueMountain Capital's Andrew Feldstein, Queen Anne's Gate Capital's Kathleen Kelley, and BlackRock's Robert Kapito.

From the conference, we've also posted up the global opportunities panel as well as the chasing yield panel.


Leon Cooperman (Omega Advisors):  He pitched going long US stocks and called them the best house in the financial neighborhood, a tune he has been singing for well over a year.  However, he did make an excellent point that the maximum "pain trade" is going higher as tons of people are sitting on large sums of cash earning nothing. 

As for specific names he likes: Capital One (COF), Express Scripts (ESRX), Halliburton (HAL), Gannett (GCI), Kinder Morgan (KMI), MetLife (MET), Qualcomm (QCOM), Watson Pharma (WPI) and Western Union (WU).  He also likes AIA Group (1299.HK) traded in Hong Kong.

The Omega Advisors founder also continued to bash bonds, saying "buying US bonds right now is like walking in front of a steam roller and picking up dimes.  It's just not a good policy."

As far as the election goes, he thinks that if Romney wins, the market will spike by 150 points, but if Obama wins, it drifts lower. For more from the Omega man, we just posted up Leon Cooperman on 14 attributes that make a good portfolio manager.


Jim Chanos (Kynikos Associates):  The noted short-seller was out again negative on tech companies.  He mainly pitched the bear case on Hewlett Packard (HPQ), calling it a value trap.  We just recently highlighted Chanos' presentation on global value traps where HPQ was highlighted among other names.

He says that "when you lose the paradigm shift, you spend an awful lot of money defending what you have."  He compared HPQ to Eastman Kodak as the company is in declining businesses.

Chanos also touched on how instead of giving cash back to shareholders, companies will make value-destroying acquisitions.  He cited HPQ's buy of Autonomy last year.  The Kynikos man argues that HPQ has overspent on acquisitions and they're hiding research & development expenditures through them.

He's also negative on Dell (DELL) saying that the company finances its subprime customers (financing their revenue growth).  For more on Chanos we just recently posted up his thoughts on the psychology of short selling.


Andrew Feldstein (BlueMountain Capital):  He likes less liquid credit, angling for 8-12% returns over a 3-7 year time horizon.  He says you have to be patient as this opportunity is available due to everyone's obsession with liquidity (i.e. don't put your money here if you don't have an appropriate time horizon).  He mentioned bonds such as Prospect Medical if you can buy and hold.  Feldstein also mentioned he's less excited about legacy distressed assets in Europe.


Kathleen Kelley (Queen Anne's Gate Capital):  Formerly of Tudor and Kingdon, she pitched two ideas: short the British pound (against long US dollar) as well as short platinum, targeting 20-30% moves to the downside.  She wants to be long the USD against the sterling because the USD can be a commodity currency.

She also likes shorting platinum as there's an oversupply due to slowing Euro auto sales.  At the Ira Sohn conference two months ago, Ospraie's Dwight Anderson pitched going short platinum as well (in addition to going long palladium).


Robert Kapito (BlackRock):  He's going for the "income hog" approach by focusing on equity dividend funds, dividend stocks like AT&T (T), Verizon (VZ), Merck (MRK), Johnson & Johnson (JNJ), high yield bond funds (or individual issues from Sprint, Ally) and municipal bonds such as the San Francisco Airport, New Jersey Tolls.  He thinks that default worry surrounding munis is "overrated."


Sources: Notes sent by readers, II's blog, @iimag,  @ldelevingne, @footnoted, @aarontask

For more from Delivering Alpha, head to the global opportunities panel (featuring Richard Perry) as well as the hunt for yield panel (featuring Marc Lasry)

Analysts' Best Stock Picks For 2011

Raymond James is out with its Analysts Best Picks for 2011 report. We highlighted their picks from 2010 and those performed pretty well with a 22.3% return. In fact, their annual selections have a 10 year average return of 12.4%.

The report details analysis of the fundamentals, growth prospects and risks associated with each stock. They've selected 13 stocks again this year and in alphabetical order, here are the Analysts' Best Stock Picks for 2011:

- Allscripts Healthcare (MDRX)
- Bank of America (BAC)
- CONSOL Energy (CNX)
- Covidien (COV)
- Digital Realty Trust (DLR)
- Equinix (EQIX)
- Halliburton (HAL)
- HealthSouth (HLS)
- Lincoln National (LNC)
- NVIDIA (NVDA)
- Panera Bread (PNRA)
- Pioneer Natural Resources (PXD)
- Stanley Black & Decker (SWK)

There are some pretty familiar names in that bunch and a few prevalent themes. They've included multiple plays in the health space with MDRX, HLS, and COV. Also, technology is represented with two names in NVDA and EQIX. Also, energy/natural resources are abundant via PXD, CNX and HAL. We wanted to highlight a few of their selections below:

Bank of America (BAC): This name is interesting because it was also on the analysts' best picks list for 2010. However, over the course of last year the stock declined. Raymond James sees the price depreciation as further opportunity and is again a buyer of shares this year. Not to mention, some of the largest hedge funds in the game have sizable stakes in BAC, including John Paulson.

Halliburton (HAL): Arguably, the time to buy this name was during the Gulf oil spill when uncertainty abounded and the stock price was depressed. Yet, RJ feels the company will see near-term earnings momentum and a rebound in international activity. We've talked about how hedge funds are betting on higher oil prices as well.

Equinix (EQIX): This tech name is intriguing because it saw some volatility last year. And as we detailed in our Hedge Fund Wisdom newsletter months ago, a large shareholder (Shumway Capital) was reducing its position size and could be partially responsible for the volatility. Raymond James likes the company's dominant market position in the colocation market and data center industry.


Keep in mind that obviously with the market rally, a lot of these names have been bid up significantly already. Some strategists would obviously advocate waiting to purchase some of these names given that they're extended and knowing that the market doesn't go straight up forever. RJ's Chief Investment Strategist Jeff Saut expects a buyable pullback.

Embedded below is the full research on Analysts' Best Picks for 2011:



You can download a .pdf copy here.

For further research from this shop, head to the previous best stock picks for 2010 as well as Jeff Saut's risk management principles.

Whitney Tilson Buys BP & Explains Why

Whitney Tilson of hedge fund T2 Partners recently appeared on CNBC and revealed he is now long BP (BP). This company of course has dominated headlines for the drastic oil spill in the Gulf of Mexico. More than anything, this investment is the definition of being greedy when others are fearful.

Currently, it's very apparent that the majority of investors are being fearful due to BP's potential liability associated with the oil spill. Not Tilson, though. He is zigging while the crowd zags and argues that this stock is simply "too cheap." While some are speculating about potential bankruptcy surrounding BP, he notes that this company earns north of $20 billion a year in profits and will be able to pay-off spill cleanup and any other potential liabilities.

BP is currently trading around 5.5x earnings and paying a 9% dividend yield. Being a value investor, Tilson obviously is not trying to make a quick trade here given the headline risk and instead is in it for the long haul. He fully acknowledges that headlines can (and probably will) continue to be negative, but he thinks it's just starting to get ridiculous. Tilson mentions that it is around a 4% position in their portfolio (rather than say 10%) because there always is the potential for an armageddon scenario where there are just years and years of problems.

In addition to Tilson's new stake in BP, we also previously learned that he is long Anheuser-Busch InBev (BUD). T2 revealed this investment idea at the Value Investing Congress and we posted up their BUD presentation for those interested. Tilson's investment in BP is an example of a stock presenting potentially extreme value through extenuating circumstances while his investment in BUD is more-so buying an attractively priced high quality business. This showcases the dynamic in value investing and stockpicking as no two investments are really ever identical.

Embedded below is Tilson's video interview where he outlines why he bought BP (Email readers will need to come to the site to view it):



For other activity from hedge fund T2 Partners, we also recently saw that Whitney Tilson and Glenn Tongue are still cautious on the markets and we received a portfolio update with their May letter to investors. Additionally, we note that they are still bearish on the housing market as well.

It definitely seems as if hedge fund managers are willing to share their new investment ideas as of late. Maybe it has something to do with the fact that hedge funds had a horrible May performance wise, but some would argue hedgies are always talking their book. Either way, no complaints as it's always refreshing to see new positions and hear a thesis. For more on hedge fund T2 Partners, be sure to check out some of their short positions as well.