Great Investors' Best Ideas Conference Notes 2013: Price, Akre, Gabelli, Pickens, Russo & More

Below are some brief notes from the 7th annual Great Investors' Best Ideas Conference in Dallas benefiting the Michael J. Fox Foundation for Parkinson's Research and the Vickery Meadow Youth Development Foundation.


Notes From Great Investors' Best Ideas Conference


Michael Price (MFP Investors): He pitched three ideas:  long Hospira (HSP), long Songbird Estates (SBD.LN) and long Dolby Labs (DLB).  HSP has seen value guys buying it, transitioning away from growth investors as the investor base changes.  The company has good free cash flow and he thinks the stock can hit $60.  His thesis on Songbird is a discount to NAV story (around 30%).  Dolby (DLB) has a ton of cash and no debt with huge royalty streams (80% of revenue).  As tablets and PCs continue to grow, they'll make money.


Chuck Akre (Akre Capital Management):  His picks were Moody's (MCO) which he likes due to its oligopoly position, solid return on equity and pricing power,  as well as O'Reilly (ORLY), the auto parts supplier which recently bought CSK Auto and the integration has gone well and now they're buying back shares.  His presentation also focused on how you should stick with your circle of competence and acknowledge when you're unsure of things. Focus on 3 things in a business:  growth of capital (high ROIC), good management, and solid reinvestment (how they used past FCF).  The price you pay is very important.


T. Boone Pickens (BP Capital):  He pitched Diamondback Energy (FANG) which he likes for its growth potential, no debt and a lot of cash.  He also likes Basic Energy Services (BAS) as excess capacity has been taken out.  He also touched on his picks from last year: National Oilwell Varco (NOV) which he still likes, as well as Pioneer Resources (PXD), almost a double and he likes the Permian basin acres (continues to like this stock as well).


Karen Finerman (Metropolitan Capital Advisors):  She pitched North Atlantic Drilling (NADL.NS) traded in Norway which was a spin-off from Seadrill (SDRL).  The spread between non-Norway rates and Norway rates is very big and many contracts already locked in.  She likes the cheap valuation, big dividend (potential for it to grow), says there's limited downside due to the backlog. There's also a catalyst with an IPO coming for a US listing and it won't be too dilutive. 


Tom Russo (Gardner, Russo & Garnder):  He pitched Nestle (NSRGY) and Berkshire Hathaway (BRK.A/B).  It seems like Russo always pitches Nestle when he speaks somewhere.  He's a global value investor and is looking for companies like See's Candies and invests for the long-term.  They have a lot of European companies in their portfolio and like market volatility as it provides opportunities to long-term investors.  The last major portfolio buys they made were AB Imbev (BUD) and Mastercard (MA) 3 years ago.


Mario Gabelli (Gabelli Funds):  He presented Cablevision (CVC) as a potential buyout candidate with John Malone (and Charter Communications) active and pushing for consolidation.  Will the Dolans sell CVC?  Argues that the company is worth up to $23 in a buyout, versus current levels of around $16.


Caroline Cooley (Crestline Investors):  She's focused on event-driven plays.  She specifically mentioned Macquarie Infrastructure (MIC) which is involved with infrastructure building, has a nice yield and could see it head higher.  It's undervalued because it cut the dividend in '09 and has limited sell-side following. says this story is probably in the middle innings.


Tom Gayner (Markel):  He pitched General Electric (GE).  He pitched the same stock at GIBI in 2007 when it was $40 and now the stock's at $25.  They still own shares and now have a $23 cost basis.


For more conference notes, we also posted up notes from Invest For Kids Chicago (Lasry, Eisman, Cooperman).

What We're Reading ~ Analytical Links 5/15/13

Meb Faber's new book: Shareholder Yield [Meb Faber]

Explanation of Tepper's chart: Equity risk premium is high (this is bullish) [The Big Picture]

On confirmation bias and the perma-whatevers [Abnormal Returns]

The end is where we start from [Reformed Broker]

On emotional finance [Research Puzzle]

What record profit margins imply for future profitability and the market [Greenbackd]

It's time to fight the Fed [MicroFundy]

The low return of high yield [Contrarian Corner]

Missed Visa and Mastercard? Then keep an eye on this one: Fleetcor (FLT) [Old School Value]

The bull case on Hospira (HSP) [Forbes]

An overview of a hedge fund favorite: Dollar Tree (DLTR) [Aegaia Research]

Time to change the channel on media stocks [CNBC]

On the 'spying' Bloomberg terminals [CNBC]

Will Wall Street's Bloomberg terminal addiction break? [NYMag]

Steelmakers develop new iron recipes [WSJ]

Thoughts on a potential Verizon & Vodafone deal [VODVZ]

Two strategies: The Washington Post vs the NYTimes [Monday Note]

Forget gold, the gourmet cupcake market is crashing [WSJ]

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.

Curtis Macnguyen's Ivory Capital Q2 Letter

Founded in 1998 by Curtis Macnguyen, Ivory Capital is a long/short equity hedge fund that focuses on value-based investments. It's worth noting that before founding Ivory, Macnguyen worked at Siegler, Colliery & Co, the same shop that Greenlight Capital founder David Einhorn previously worked for.

Ivory is based in Los Angeles and today we're covering their second quarter letter that updates their portfolio.

At quarter end, Ivory Capital's top five positions were:

1. Microsoft (MSFT) 6.5%
2. Yahoo! (YHOO) 5.1%
3. Citigroup (C) 4.0%
4. DeNA Co (TYO:2432) 2.7%
5. Advanced Micro Devices (AMD) 2.6%


Performance & Equity Exposure

Ivory finished the second quarter -2.2% and year to date for 2011 they are -1.85%. Their equity exposure is 69.5% long and 43.4% short, leaving them net long 26.1%. While they saw outperformance in their other long positions of Sprint Nextel (S) and CVS Caremark (CVS), other longs hurt them.


Position Updates: Western Digital (WDC), Seagate Technology (STX) & Hospira (HSP)

The hedge fund thinks that consolidation in the hard disk drive industry should bring solid economics and dampen the cyclical nature of the industry. They also like STX's share repurchases and dividend (4.5% yield).

The current issue of our Hedge Fund Wisdom newsletter analyzes STX as numerous other hedge funds own shares (and it also features analysis of YHOO, a controversial stock at the moment).

Ivory also fancies generic injectables and infusion pump maker Hospira (HSP) because they see it as a strategic asset with 25% market share and high barriers to entry.

Embedded below is Ivory Capital's Q2 letter to investors (email readers come to the site to view):



For more letters from hedge funds, we've posted up the following:

- Oaktree Capital: Howard Marks' latest commentary

- Corsair Capital sees increased volatility ahead

- David Einhorn & Greenlight Capital's Q2 letter

- Third Point buys MOS & SLE

- Jonathan Ruffer worried about China

Strategist Saut: Accumulate Stocks With Favorable Risk/Reward

Raymond James market strategist Jeff Saut is out with his latest weekly missive and it's quite clear he's bullish in the intermediate term. However, he does think a consolidation could still happen in the near-term.

In particular, Saut points to oil:

"Indeed, over the past few weeks oil has become almost as extended above its 200 day moving average as it was in July 2008, and we all know how that ended. Not that I am predicting a similar collapse in the price of Texas Tea, but rather that a consolidation/pullback period is likely, which could provide the backdrop for another 'leg up' in stocks (even the energy stocks)."

Overall, Saut thinks any pullback in the S&P 500 will be around the 1315-1320 area. Saut was buying stocks during the February/March decline and it seems he has a 'buy the dips' mentality.

So what stocks does he like? Saut prefers favorable risk/reward setups and offers up Hospira (HSP) as a name with a lowered risk profile. He also continues to like Williams Companies (WMB). We just noted that Dan Loeb's hedge fund Third Point LLC likes WMB as well. You can read an in-depth analysis of Williams Companies in the most recent issue of our newsletter.

In other energy names, the market strategist also likes EV Energy Partners (EVEP), LINN Energy (LINE), and Clayton Williams Energy (CWEI).

Embedded below is Jeff Saut's latest market commentary:

Jeff-Saut-Market-Commentary


You can download a .pdf copy here.

For more insight from market strategists, head to our recent coverage of Don Coxe, who says the risk of a stagflationary bond bear has arrived.