Michael Price's Presentation at London Value Conference: Long Hospira & Hess

Continuing our notes from the London Value Investor Conference 2013, the next speaker is Michael Price of MFP Investors.  He talked about his investment process and presented two long ideas: Hospira (HSP) and Hess (HES).


Price's Background

Michael Price first came to London as an investor in 1984. At the time few people in Europe used  a balance sheet focused value approach. Many companies were not covered by an analyst at  all and this encouraged Price as the lack of coverage made him feel that he was discovering new  opportunities. Price said that this was the opposite situation that you find at recent Berkshire  Hathaway annual meetings where 40,000 people focus on one company. He said to find opportunity  you need to get off the beaten track.


Price's Investment Process

Price talked about his investment process. Two-thirds of his portfolio is made up of stocks that trade  below two-thirds of their intrinsic value. The other third are special situations e.g., firms involved  in proxy fights, liquidations or a fight for control. From his 40 years of experience, excluding 2008  - he said we all need to forget about 2008 - that type of value portfolio will weather the storms.

What’s important is to buy cheap and be well diversified with at least 30-70 holdings. When you are  convinced that what you already own is cheap compared to comparable businesses you add to it.  When you have done lots of work and you gain conviction about an idea you can take the stake up  to 3 to 5% of your portfolio. Your top five positions might each be 5% of your portfolio. If you have  conviction you should add to holdings as they get cheaper. He values businesses by asking what a  potential owner would pay for the whole company.

Be prepared to wait patiently. If there is nothing to do, sit with cash. Cash is ammunition. An  investor should spend all of his or her time working on calculating intrinsic values waiting for the  market to throw out an opportunity. The definition of luck is preparation meeting opportunity.

Bad news creates opportunity: wait for bankruptcies, the death of a control person who owns  a large part of the business, litigation, government intervention and accidents. Always look at  the companies whose share price is most down to find value. Price said he also likes investing in  companies where management has built up intrinsic value and made mistakes.

In terms of market valuation today, Price said the market was reasonably priced but there are still  some opportunities to find securities that trade at two-thirds of their asset value.


Long: Hospira (HSP)

Idea: Long Hospira (HSP:NYSE).  Hospira had been a growth story until the FDA shut down one of its largest plants. The share price  went from $45 to $28 overnight. The growth investors sold to the value investors. Price thinks that  the company will have completely recovered in two years.


Long: Hess (HES)

Idea: Long Hess (HES)  Hess is a case where the management have stumbled. Hess is involved in a proxy fight with Paul  Singer’s Elliott Associates. It trades at a 50% discount. Price thinks there is likely to be four or five  new directors. The company with be divided into two parts and share buybacks with be agreed.  Assets will be sold off. John Hess is likely to step down. The outcome of the vote is due on May 16.  It is also possible that Hess may get bought out.


Michael Price said he also likes US banks (not European banks, though). He thinks Berkshire  Hathaway is 20% overvalued.


Book Recommendation

Michael Price highly recommended a book about Peter Cundill’s  investment approach by Christopher Risso-Gill (2011) “There’s Always Something to Do: The Peter Cundill Investment Approach."


Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.

Soros Fund Management Bullish on Petrobras, Suncor & DirecTV: 13F Filing Q1 2010

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is George Soros' hedge fund firm, Soros Fund Management. While he is still slightly involved, the bulk of the portfolio activity you see below comes from his son Robert Soros who runs the flagship Quantum Endowment. For 2009, Soros' Quantum Endowment Fund was up 28% as noted in our hedge fund performance numbers list. We follow Soros for sector leans due to their global macro tilt. Given that they dabble in pretty much any asset class they please, remember that the equity positions below are only a brief part of a cohesive whole.

George Soros has in the past voiced his concern over the deleveraging of the US consumer as he feels it could hurt consumer spending (and thus growth) in the future. Soros' thoughts from the markets are detailed in his most recent book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. And of course you can receive a primer on all things finance from the man himself in his first book The Alchemy of Finance.

The positions listed below were their long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
Conexant Systems (CNXT) Notes
Cobalt International Energy (CIE)
iShares Emerging Markets Index (EEM) Puts
PNC Financial (PNC)
Telecom Argentina (TEO)
Covanta (CVA) Notes
Westport Innovations (WPRT) ~ we previously detailed Soros' new stake
Solar Capital (SLRC)
Petrohawk Energy (HK)
AMR (AMR)
JDS Uniphase (JDSU) Notes
RF Micro (RFMD)
Nokia (NOK)
ADC Telecomm (ADCT) Notes
Global Crossing (GLBC) Notes
Dow Chemical (DOW)
Staples (SPLS)
Exco Resources (XCO)
International Paper (IP)
Armstrong World (AWI)


Increased Positions
NovaGold Resources (NG): Increased position size by 435.8% ~ we previously detailed this
DirecTV (DTV): Increased by 27.3%
Suncor Energy (SU): Increased by 22.4%
Cadence Design System (CDNS) Notes: Increased by 20%
Lawson Software (LWSN) Notes: Increased by 19.6%
Petroleo Brasileiro (PBR): Increased by 17.7%
Verizon (VZ): Increased by 16.7%


Reduced Positions
Plains Exploration (PXP): Reduced position size by 24.7%
Monsanto (MON): Reduced by 17.4%
Hess (HES): Reduced by 16.1%
Emdeon (EM): Reduced by 12.2%
SPDR Gold Trust (GLD): Reduced by 9.6%


Positions They Sold Out of Completely
Mcdata (inactive) Notes
CSG Systems International (CSGS) Bonds
Terra Industries (TRA)
Select Sector Financials (XLF) Calls
Bunge (BG)
Coach (COH)
Heinz (HNZ)
Sandridge Energy (SD)
Energy XXI (EXXI)
iShares US Telecom Sector (IYZ)
CVR Energy (CVI)
James River Coal (JRCC)
Mechel (MTL)
Steel Dynamics (STLD)
Denbury Resources (DNR)
Windstream (WIN)
McMoran Exploration (MMR)
Patterson-UTI (PTEN)
Sterling Construction (STRL)
Century Aluminum (CENX)


Top 15 Holdings (by percentage of assets reported on 13F filing)

1. SPDR Gold Trust (GLD): 6.95%
2. Petroleo Brasileiro (PBR): 4.63%
3. Hess (HES): 3.46%
4. Suncor (SU): 3.26%
5. LSI Corp (LSI) Notes: 3.2%
6. Petroleo Brasileiro (PBR-A): 2.66%
7. Monsanto (MON): 2.62%
8. Linear Tech (LLTC) Notes: 2.49%
9. Lawson Software (LWSN) Notes: 2.22%
10. Interoil (IOC): 2.19%
11. RF Microdevices (RFMD) Notes: 2.11%
12. DirecTV (DTV): 2.03%
13. Verizon (VZ): 2.00%
14. Flextronics (FLEX) Notes: 1.98%
15. Plains Exploration (PXP): 1.80%

Firstly, please note that since Soros Fund Management is a global macro oriented firm, they undoubtedly have positions in other markets (debt, currencies, commodities) that are not required to be disclosed by the SEC. As such, the above is only partially representative of Soros' portfolio. That said, you can definitely see some themes via their equity exposure as they are long various oil and agriculture names.

Additionally, they seem to like the satellite play DirecTV (DTV). As we've detailed previously, Chase Coleman's hedge fund Tiger Global is bullish on DTV. It was also interesting to see Soros have a sizable long in Interoil (IOC) as many investment managers and pundits have labeled IOC as a potential fraud. Whitney Tilson's hedge fund T2 Partners has been short IOC under the notion that IOC has no real proven reserves and is essentially just a public relations hype machine. This dichotomy of opinion is what truly makes a market.

Overall, the natural resource and energy theme continues to garner a prominent position in Soros Fund Management's portfolio. Gold is their top holding, followed by large stakes in Petrobras, Hess, Suncor, Monsanto, Interoil, and Plains Exploration. They also show a large addition to NovaGold Resources, but we had already mentioned this position increase back when the transaction took place as both Soros and John Paulson bought shares.

Assets reported on Soros' 13F filing were $8.75 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 14 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, Dan Loeb's Third Point, John Paulson's hedge fund Paulson & Co, Chase Coleman's Tiger Global, Roberto Mignone's Bridger Management, Phil Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, and Shumway Capital Partners. Be sure to check back daily for new hedge fund updates.

Soros Fund Management's Portfolio: Adds Citigroup & Monsanto, Dumps Potash (13F Filing)

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is hedge fund Soros Fund Management. While many will automatically attribute this fund to George Soros, much of the credit also goes to his son Robert Soros who runs the flagship Quantum Endowment Fund. But for those of you wanting an inside look at George Soros' portfolio, look no further. We follow Soros' portfolio movements due to his macro sense and solid track record. We like to see what sectors he is flocking to and these filings are the perfect example of possible themes his firm might be seeing. Soros Fund Management is a true global macro player as they dabble in pretty much any asset class they desire, so just keep that in mind as the below only details their equity and options holdings.

In the past Soros has said one of his main concerns is the deleveraging of the US consumer over a longer period of time which will hurt consumer spending and thus growth going forward. More of Soros' thoughts on the financial markets are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.

For 2009, Soros' Quantum Endowment Fund was up 28% as noted in our hedge fund performance numbers list. In the past we've also detailed some of their recent portfolio maneuvers. The positions listed below were their long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Citigroup (C)
DirecTV (DTV)
Select Sector Financials (XLF)
Calls Bunge (BG)
Kinross Gold (KGC)
Autonation (AN)
The rest of their new holdings were less than 0.5% of reported assets each:
Dollar General (DG), Heinz (HNZ), Orbital Sciences Bonds, Shanda Games (GAME), Hasbro (HAS), CTrip (CTRP), RailAmerica (RA), Sandridge Energy (SD), Energy XXI (EXXI), CVR Energy (CVI), Sina (SINA), Transatlantic (TAT), American Axle (AXL), & China Real Estate Information (CRIC)


Increased Positions
Select Sector Financials (XLF): Increased by 63,730% (no, not a typo)
Pfizer (PFE): Increased by 365%
Monsanto (MON): Increased by 244.4%
Suncor (SU): Increased by 171%
SPDR Gold Trust (GLD): Increased by 152%
Emdeon (EM): Increased by 54.6%
Plains Exploration (PXP): Increased by 14%
Hess (HES): Increased by 11.2%


Reduced Positions
Linear Technology Bonds: Reduced by 8%


Removed Positions (Sold out completely):
Potash (POT)
Goldman Sachs (GS) Puts
Audiocodes Notes
S&P 500 (SPY)
Wyeth (WYE) ~ merger transaction complete
iShares Emerging Markets (EEM) Puts
Applied Materials (AMAT)

The rest of the stakes they dumped were quite small, each less than 0.5% of the previously reported assets: Petrohawk (HK), Focus Media (FMCN), SPSS Bonds, RPM (RPM), Liberty Media (LMDIA), Conexant Systems Bonds, Renesola (SOL), MSC Software (MSCS), Navistar (NAV), Covanta (CVA) Calls, S&P 500 (SPY) Puts, & Anadarko Petroleum (APC) Calls


Top 15 Holdings by percentage of assets reported on 13F filing

1. SPDR Gold Trust (GLD): 7.5%
   
2. Petroleo Brasileiro (PBR): 4.2%
   
3. Hess (HES): 3.9%
   
4. Monsanto (MON): 3.6%
   
5. Citigroup (C): 3.5%
   
6. LSI Bonds: 2.88%
   
7. Suncor (SU): 2.86%
   
8. Petroleo Brasileiro (PBR-A): 2.82%
   
9. Interoil (IOC): 2.42%
   
10. Linear Technology Bonds: 2.4%
    
11. Pfizer (PFE): 2.4%
    
12. Plains Exploration (PXP): 2.18%
    
13. RF Micro Bonds: 2.1%
    
14. Select Sector Financials (XLF): 1.95%
    
15. Mcdata Notes: 1.94%
    

Much has been made in the media recently about the fact that George Soros has been out calling gold a bubble but has more than doubled his exposure to the gold exchange traded fund GLD. First, keep in mind that these portfolio disclosures were as of December 31st, 2009. So technically he could have sold completely out by now. It's also possible that they are merely using this position as a hedge of some sort. Also keep in mind that George is probably less involved with the day-to-day operations of the hedge fund these days as his son Robert is more responsible for running the show at Quantum. So, take that position with a grain of salt considering George Soros' recent comments. And for those of you tracking the precious metal's every move, check out this interesting technical analysis video on gold.

Of the positions they sold, the most notable is definitely Potash (POT). They completely exited their stake and it was previously one of their largest positions. They also exited LMDIA but keep in mind that they received new shares in DTV as a result of the merger transaction. Soros Fund Management continues to hold a large stake in Petroleo Brasileiro as they own both share classes. And while Soros sold off POT, they massively added to MON, another agricultural giant. Like many other hedge funds we've seen, Soros also added shares of Citigroup (C) in the fourth quarter. Soros also significantly boosted their stake in Pfizer, a stock we recently saw that was one of the top hedge fund holdings.

Overall though, some intriguing portfolio changes. To learn how to invest like George Soros, we recommend checking out his first book, The Alchemy of Finance. Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $8.8 billion this quarter compared to $6.2 billion last quarter, over a 40% increase in exposure. Remember that these filings are not representative of the hedge fund's entire base of AUM.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, and Brett Barakett's Tremblant Capital. Check back daily for our new updates.