Marc Lasry: Long General Motors & Hovnanian Bonds ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Marc Lasry of Avenue Capital gave a presentation on going long General Motors (GM).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Long General Motors (GM)

Lasry pitched GM, saying that the company had the largest US market capitalization at $12.2 billion in the late 1950's. In 2000, GM's revenue was higher than Wal-Mart at $189 billion. Currently, GM equity trades at less than 1.0x EV/EBITDA (including JVs at 17.9B, cash 20.3B, Market Cap 41.7B, other assets 4.3B, 5.5B in debt, and 6.9B preferreds).

He compares GM now to Apple (AAPL) back when they needed $150 million from Microsoft (MSFT) or AAPL would have gone bankrupt. Since that loan from Microsoft, Apple many years later has become the largest company in the world at $350 billion.

Lasry says investors are focusing on timing re: GM and that's not the right way to do it. Ultimately, he acknowledges there's lots of risk out there. But the key question you have to ask, he says, is "are you getting paid enough to invest?"

The risk for GM is another recession and people buy fewer cars. As a true contrarian, he likes to buy when others aren't. He started buying the bonds when it was 2x EBITDA and you can get an even better entry point today. We just covered how David Einhorn's Greenlight Capital bought GM equity in the third quarter as well.


Long Hovnanian (HOV)

Lasry also mentioned that he liked homebuilder Hovnanian as rates and prices are both very low. The company has 350 million in cash, 1B inventory and 1B NOLs. He likes the 6 to 7% bonds at 35 with 20% yield. You get paid to wait and thinks you are covered and he'd rather get paid to wait with the bonds than take on more risk with the equity. Avenue Capital believes that the US GDP will have 1% growth next year and no double-dip recession.

You can view full notes from Invest For Kids Chicago here.

Barry Sternlicht Likes Lowe's, Toll Brothers, NVR ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Barry Sternlicht of Starwood Capital Group gave a presentation on going long.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Likes Lowe's, Toll Brothers, NVR

Sternlicht is a successful real estate and hotel investor who founded Starwood Capital Group in 1991 and has structured 40 transactions. He says themes to invest behind right now are residential land as it's a contrarian bet and return of the US residential market is a question of when, not if. During 2007 to 2009, household formation fell well below the historical trend.

He says the problem is appraisals because of distressed sales when bank dump properties. Housing affordability is a good thing and we're building 3800-400k new homes when the real need is around 1-1.2 million. When people finally start to move there will be "pent up demand."

He likes certain homebuilders such as : Toll Brothers (TOL), Lennar, DR Horton, and NVR (NVR). TOL is his favorite along with NVR, which has limited inventory and turns its inventory better (Ryan Homes).

He says to avoid Beazer (BZH) and Hovnanian (HOV) because they could go bankrupt depending on how long the turnaround takes. This is interesting because Avenue Capital's Marc Lasry said he was long Hovnanian bonds at the same conference.


Lowe's (LOW): Sternlicht also likes LOW because the company owns 90% of its stores and benefits from housing demand. It has a diverse revenue stream and the internet can't replace things like home remodels because you need to see in-person what you're purchasing.

He notes that management is willing to repurchase 70% of share buybacks in 4 years (reminds him of Teledyne). The company is free cashflow positive and has a 2.5% dividend yield and trades at 6.5x EV/EBITDA. Pershing Square's Bill Ackman also likes LOW he revealed at a different conference yesterday.

You can view full notes from Invest For Kids Chicago here.