What We're Reading ~ Analytical Links 4/17/13

A new site aggregating conference call transcripts [ConferenceCallTranscripts.org]

Intel (INTC): Anatomy of a tech value trap [Reformed Broker]

Why equity long/short investing is not dead [HFIntelligence]

Sticking to a plan in the face of emotional volatility [Abnormal Returns]

Rare interview with Liberty Media's (LMCA) John Malone [CNBC]

Jeremy Grantham on how to play resource scarcity [Advisor.ca]

Aereo has TV networks circling the wagons [NYTimes]

The death of value investing [Business Insider]

Thermo Fisher (TMO) nears deal for Life Technologies (LIFE) [Reuters]

On Dish Network's (DISH) bid for Sprint Nextel (S) [Bloomberg]

Interview with Markel's (MKL) Tom Gayner [GuruFocus]

Diabetes in Mexico: eating themselves to death [The Economist]

Top 5 websites capturing larger share of real estate traffic [Inman]

As big investors emerge, Bitcoin gets ready for close-up [Dealbook]

Highfields Capital Discloses Liberty Ventures Stake

Jonathon Jacobson's hedge fund firm Highfields Capital just filed a 13G with the SEC regarding shares of Liberty Ventures (LVNTA).  Per the filing, Highfields now owns a 5.8% ownership stake in LVNTA with 1,482,738 shares.

This is a brand new position for the hedge fund and the filing was made due to portfolio activity on September 12th.  Liberty Ventures is a tracking stock that was created in August to track certain assets of Liberty Interactive (LINTA).

LVNTA shares track Liberty's ownership interests in various entities such Expedia, TripAdvisor, and many more companies.  Shares of LINTA, on the other hand, track the businesses of Liberty such as home shopping network QVC.  Shareholders of LINTA received LVNTA shares in the tracking stock separation.

Liberty Rights Offering

It's unclear if Highfields acquired some of their LVNTA shares via the LINTA spin or not.  Highfields did not disclose a LINTA stake at the end of Q2 in their most recent 13F filing, but they could have easily purchased shares before the split. 

This is important mainly because Highfields' trading activity date on their SEC filing matches the date of Liberty Ventures' rights offering commencement.  Yahoo Finance has an explanation of this:

"On August 9, 2012, in connection with the creation of its new Liberty Ventures tracking stock, Liberty Interactive distributed subscription rights to purchase share of Series A Liberty Ventures common stock (each, a Series A Right). Each whole Series A Right entitles its holder to subscribe, at a per share subscription price of $35.99, for one share of Series A Liberty Ventures common stock pursuant to a basic subscription privilege, and also entitles the holder to subscribe for additional shares of Series A Liberty Ventures common stock pursuant to an oversubscription privilege.  The rights offering will commence on Wednesday, September 12, 2012, and will expire at 5:00 p.m., New York City time, on Tuesday, October 9, 2012, unless extended by Liberty Interactive Corporation"

The rights offering commenced on September 12th and trades under symbol "LVNAR."  It will expire at 5pm EST on October 9th (unless extended by Liberty). 

We've previously covered other portfolio activity from Highfields here.

Presentations from ValueX Vail Conference: LINTA, BAC, AMZN, CNW, PSUN, SPLS & More

We wanted to post up the presentations from the ValueX Vail Conference that just took place last week.  Vitaliy Katsenelson (follow him on Twitter here) hosted the event and it featured numerous equity pitches, including Jim Chanos' presentation on value traps that we posted yesterday.

The other presentations are posted below and include:

- Patrick Brennan, CFA on the bull case for Liberty Interactive (LINTA)
- Kai Shih of Shih Investments on Bank of America (BAC)
- Josh Tarasoff of Greenlea Lane Capital on Amazon.com (AMZN)
- Dan Amoss of Strategic Short Report: Short Con-Way (CNW)
- Shane Calhoun of Belcaro Capital on Pacific Sunwear (PSUN)
- Adrian Mak on Staples (SPLS)
- Joe Cornell of Spin-Off Research: The ABC's of Spin-Offs
- JJ Abodeely of Sitka Pacific Capital on value investing from top-down
- Footnoted's Michelle Leder on diving into SEC filings
- Greg Merrill of Strategic Asset Management on exporting natural gas
- Alex Rubalcava on managing investor workflow
- Hendrik Leber of ACATIS: A European perspective
- Jon Markman on Reminiscences of a Stock Operator

Email readers please click here to come view the presentations embedded below:


Patrick Brennan: Liberty Interactive (LINTA) 




Kai Shih on Bank of America (BAC)




Josh Tarasoff on Amazon.com (AMZN)




Dan Amoss: Short Con-Way (CNW)




Shane Calhoun on Pacific Sunwear (PSUN)




Adrian Mak on Staples (SPLS)




Joe Cornell: The ABC's of Spin-Offs




JJ Abodeely on Value Investing From Top-Down



Michelle Leder on Diving into SEC Filings




Greg Merrill on Exporting Natural Gas




Alex Rubalcava on Managing Investor Workflow




Hendrik Leber: A European Perspective




Jon Markman on Reminiscences of a Stock Operator





Thanks again to Vitaliy for making all of the presentations available.

If you missed it, be sure to also check out Jim Chanos' presentation on CNX, PBR, HPQ, CSTR & SAN from the event as well.

Passport Capital's Top 10 Holdings & Saudi Equity Theses: Q1 Letter

Today we're highlighting commentary from Passport Capital's Q1 letter to investors.  We've already highlighted how Passport is net short and so now we want to shift focus to John Burbank's top longs.

Passport's Top 10 Holdings (at end of Q1)

1. Vivus (VVUS US): 5% of NAV
2. Cytec Industries (CYT US): 4%
3. Marathon Petroleum (MPC US): 4%
4. Yanbu National Petroleum (YANSAB AB): 4%
5. Etihad Etisalat (EEC AB): 4%
6. Google (GOOG US): 3%
7. Liberty Interactive (LINTA US): 3%
8. Apple (AAPL US): 3%
9. Saudi Basic Industries (SABIC AB): 2%
10. Wynn Resorts (WYNN US): 2%

Comparing the above longs to their list at the end of 2011, there are a few noticeable changes.  Their stake in Vivus has climbed from 7th largest holding to their top position.  We had previously detailed how Passport was bullish on Saudi equities and you see that reflected now in their latest portfolio. 

US tech giants Apple (AAPL) and Google (GOOG) weren't included in their 2011 year-end top 10 but both make the list now.  As of March 31st, their top 10 equity holdings accounted for 34% of the fund's net asset value.


Passport's Investment Theses on Saudi Equity Plays

Given that many of their top holdings are now plays in Saudi equities, we thought it prudent to highlight some of their rationale for owning them.

Yanbu National Petrochemical:  John Burbank writes, "Our rationale for investing in YANSAB is predicated on the company’s strong cash-generating capability.  The company has a highly advantaged feedstock position in Saudi Arabia, allowing it to generate  EBITDA  margins  in  excess  of  45%  and  FCF  yield  of  over  10%.    YANSAB  is  a  single  petrochemical  plant commissioned in 2010 with no plans for further expansion and we believe is likely to pay out all its  cash once its debt covenants are fulfilled.  Over FY2011, the company decreased its long-term debt by  over 30% with Net Debt/EBITDA now at 2.7x.  We think YANSAB’s 51% shareholder SABIC could  start paying out dividends in the 2H of 2012, which should significantly re-rate the stock."


Etihad Etisalat: Passport's founder notes that, "Etihad Etisalat operates under the brand name Mobily, is the second largest mobile operator in Saudi,  and is a key beneficiary of the deregulation of the Saudi telecom sector.  Earnings have grown at around  48.7% CAGR in the last five years.  Mobily is capturing the growing data market (currently 22% of  revenue) due to what we believe are superior data services infrastructure compared to the competition.   In addition, Mobily is currently the leader in mobile broadband.  This segment is growing at an  exponential rate due to increased use of mobile tablets and 3G-enabled phones by the affluent Saudi  population (~60% of whom are below the age of 30).  Due to very high mobile penetration rates in the  Kingdom, Mobily is transforming from a high-growth company to a dividend opportunity given its SAR  4.25 FCF/share."


Saudi Basic Industries Corp:  The hedge fund's thesis on this name is that, "SABIC is the largest petrochemical company in the world by market cap and among the top five in terms  of production capacity.  SABIC has the key structural advantage of  very low-cost feedstock for its  petrochemical complexes in Saudi Arabia that helps the company maintain a healthy EBITDA margin of  approximately 32%.  The company increased its revenues by 25% and net income by 36% YoY. SABIC  represents approximately 11% of the market cap  of the Tadawul index, and while the stock has  underperformed the general market, we believe it will be a key beneficiary of foreign flows once the Saudi  market opens up to foreign investors."


Don't miss our other post from the hedge fund's Q1 letter on why Passport is net short.

Why Passport Capital Likes Marathon Petroleum (MPC) & Top Equity Positions

John Burbank's hedge fund firm Passport Capital talked about their rationale for owning Marathon Petroleum (MPC) in their year-end letter.

Marathon Petroleum (MPC)

Passport writes, "Marathon has an $11.8 billion market capitalization and an enterprise value of $12.2 billion. We expect the company to generate $3.9 billion in EBITDA in 2012 and free cash flow (FCF) of $1.5 billion, for roughly a 14% FCF yield.

During the quarter, the company raised their quarterly dividend from $0.20/share to $0.25/share, resulting in approximately a 3% dividend yield at year end. During its first analyst day in December, the company emphasized its highly experienced management team, cycle-tested business model, unique integrated asset base, and sound financial position. MPC also emphasized organic projects in 2012 that could increase access to discounted crudes and increase yield of higher margin products like distillates. Their Detroit refinery upgrade (expected by the end of 2012) was reported to be on schedule and budget.

While the fourth quarter was weaker than originally expected given the decline in the Brent/WTI spread, it is typically the weakest quarter of the year. Importantly, the decline in the Brent/WTI spread does not impact our free cash flow estimate for 2012, which provides a yield of 14% and remains unchanged despite the decline in the spread."

So what other funds own Marathon Petroleum? Barry Rosenstein's JANA Partners is the second largest owner of MPC shares after assembling a massive new position in the fourth quarter.


As of December 31st, here were Passport's Top Ten Equity Positions:

1. Marathon Petroleum (MPC): 5% of NAV
2. Liberty Interactive (LINTA): 4%
3. Cytec Industries (CYT): 3%
4. Thoratec (THOR): 3%
5. Tarpon Investimentos (TRPN3.BZ): 2%
6. Cie Financiere Richemont SA (CFR.VX): 2%
7. Vivus (VVUS): 2%
8. C&J Energy Services (CJES): 2%
9. Priceline.com (PCLN): 2%
10. WebMD (WBMD): 1%

You can view an equity analysis of Priceline.com in the brand new issue of our Hedge Fund Wisdom newsletter.

Also, we recently highlighted why Carl Icahn likes WebMD as well. Lastly, you can watch John Burbank's interview with Bloomberg where he talks about why he likes VVUS and why he thinks 2012 is a stockpicker's market.

For more of the hedge fund's commentary, we've also posted up why Passport Capital likes Liberty Interactive (LINTA).

Why Passport Capital Likes Liberty Interactive (LINTA)

In their year-end letter, John Burbank's hedge fund firm Passport Capital talked about their investment thesis on one of John Malone's companies:

Liberty Interactive (LINTA)

Passport writes,

"Liberty Interactive returned 9.9% during the fourth quarter. Having successfully resolved bondholder litigation that had constrained its ability to return capital to shareholders, the company split from parent corporation Liberty Media Corp. in late September. We view this split as the first step in a shareholder- friendly metamorphosis of LINTA reminiscent of those undergone by other Liberty entities which became Liberty Global, Discovery Communications, and DirecTV. Key strategies include equity shrink, sale/spin-off of non-core assets, and a consequent broadening of the shares’ market constituency.

In October, the company repurchased shares at a 12% annualized rate. We expect this pace to accelerate given the company's significant liquidity and minority equity stakes, which amount to approximately 57% of market capitalization as follows:

- Value, partially taxed, of minority equity positions in Expedia, TripAdvisor, and Home Shopping Network: approximately 28% of market capitalization

- Cash in excess of operating needs: approximately 8% as calculated by Passport

- 2012 FCF yield (before impact of share repurchase): approximately 8% as calculated by Passport

- Additional debt expected on QVC bank credit line: approximately 13% as calculated by Passport

The company’s primary operating asset, QVC, is a high-quality cash generator which has performed in line with our expectations. While the primary bear case on the business is online competition, we note that 35% of QVC’s U.S. sales and about 30% of total company sales transact online, that over half of QVC’s new customers have been arriving online, and that QVC’s customer repeat rates have generally been steady for many years. QVC’s franchise is rooted in its ability to move incremental volumes for manufacturers and consistently please its loyal consumers, and for this QVC receives differentiated merchandise and pricing that represent a significant moat around the business. QVC’s 20% operating (OIBDA) margins and its recent shipping and handling price increase support this point."


Other Hedge Funds That Own LINTA

John Malone's various Liberty entities have always seemingly been owned by hedge funds. Liberty Interactive (LINTA) in particular is owned by numerous other managers besides Passport.

However, what's interesting is that in the fourth quarter, LINTA was one of the stocks most actively reduced or sold by the 50+ prominent hedge funds we track. Despite this, a plethora of well known managers still own the stock.

Here are some of the top owners of LINTA in descending order: Empyrean Capital Partners, Highbridge Capital, SAC Capital, JANA Partners, Carlson Capital, Third Point, Senator Investment Group, and Ivory Investment Management.

For more from Burbank's firm, we've also posted up why Passport Capital likes Marathon Petroleum (MPC).

Dan Loeb Discloses Gold Bullion and Potash (POT) Positions

For September, Dan Loeb's hedge fund Third Point was up 3.9%. Year to date for 2010, their offshore fund is up 19.1%. Third Point's annualized return now sits at 18% with a correlation to the S&P 500 of 0.41 and a Sharpe Ratio of 1.27. To follow in his successful footsteps, check out Dan Loeb's recommended reading.

In a monthly disclosure to investors, Loeb's portfolio reveals some interesting new plays. At the end of September, Third Point's top positions were:

1. Chrysler (multiple securities)
2. Gold Bullion
3. Delphi Corp (multiple securities)
4. Potash (POT)
5. CIT Group (multiple securities)

The most notable change right off the bat is the listing of gold bullion as Third Point's 2nd largest position. As far as we're aware, Loeb has not owned gold since around the beginning of 2009 when he utilized it as an uncertainty hedge. This position was not present in the previous monthly disclosures from the hedge fund so its fresh appearance is duly noted.

Many investors will be curious as to his rationale for the position. In Third Point's latest letter, Loeb outlined how the firm had put on numerous "asymmetrical trades using derivatives, options and debt securities to hedge against extraordinary global events." They are allocating 1% of fund assets per annum to this protection. In late 2008 and into the first quarter of 2009, Third Point utilized gold (among other things) as 'doomsday and fat tail risk' trades. Gold bullion could again be a part of that basket, but they might have purchased for other reasons too, there's no clear answer.

The second notable portfolio change is Third Point's addition of Potash (POT) to the portfolio in size. As their fourth largest holding, this stock is an arbitrage play. Potash received an unsolicited buyout offer of $130 per share from BHP Billiton (BHP). Shares currently trade above the offer at $141 as speculation grows a bidding war will emerge or BHP will raise their offer.

Third Point's recent winning positions include: Lyondell (LALLF), a post-reorganization equity that many hedge funds have been fond of, including Jamie Dinan's York Capital. In Loeb's second quarter letter to investor, he asserted his fondness for post-reorganization equities and mortgage exposure. Loeb's fund also saw positive performance from their Anadarko Petroleum (APC) stake, a position we revealed after the unfortunate Gulf oil spill. Other winning stakes for Third Point include NewPage Corp and Liberty Media Corp Interactive (LINTA). Losing positions for the firm consist of four undisclosed short positions.

Back in the second quarter, we noted that Third Point reduced equity exposure. That theme is largely still prevalent as the hedge fund is only 26.3% net long equities. They are net short energy at -0.3% and their largest net longs are consumer at 7.9% and financials at 5.9%. In credit, we see a new position as Third Point is net short Government at -14.4%. They are net long mortgage backed securities (MBS) at 19.5% and distressed at 15.8%. In terms of other portfolio positions, we noted how both Loeb's Third Point and David Einhorn's Greenlight Capital recently provided a bridge loan to BioFuel Energy (BIOF).

Latest Exposure Levels From Dan Loeb's Hedge Fund Third Point LLC

Dan Loeb's Offshore Fund at Third Point LLC recently released its latest performance and exposure breakdown. Loeb's hedge fund is worth following simply for this fact: it's generated an annualized return of 17.7% versus 4.1% for the S&P 500 since December 1996. Not to mention, they've done so with a correlation to the S&P of 0.40. Needless to say, those are impressive figures. Those of you desiring to follow in his footsteps can check out Dan Loeb's recommended reading list for wisdom.

For the month of June 2010, Third Point was down 2.0% largely due to their long equity positions in financials. Yet, despite the rough month, they are still up 10.2% for 2010. As of last tally, their Offshore Fund managed $1.793 billion. So while hedge funds had a brutal May, it looks like June was also a losing month for many big players.

Now, to the good stuff: the portfolio breakdown. We've covered countless times how Loeb's fund has been net long distressed debt. This trend remains unchanged. Third Point is 25.1% net long distressed credit and 19.8% net long MBS. While their distressed exposure contributed to negative performance in June, their MBS exposure contributed positively.

Here are Third Point's top positions (keep in mind they own multiple securities in each of these names):

- Chrysler
- Delphi Corp
- CIT Group
- Dana Holding
- PHH Corp

As you'll notice from previous times we've covered Loeb's portfolio, his top holdings remain pretty much unchanged. In equities, Loeb's hedge fund has their largest net long exposure in financials (at 7.8% net long) followed by consumer names (at 4.7% net long). In terms of total long/short exposure, Third Point is 37.9% net long equities and -12.2% short, leaving them 25.7% net long. This is slightly below the average hedge fund exposure levels of around 30% net long. Geographically speaking, Third Point continues to be net short Asia at -1%. They are net long the Americas to the tune of 87% and Europe to the tune of 13%.

In the equity realm, Loeb made note in a recent letter that Third Point still fancies post-bankruptcy equities, deeming them cheap. We'll have to see if any new positions pop in that regard when their next 13F filing is released in a month or so. Loeb's top winning positions last month included two shorts, Icelandic Bank debt, 'Asset Backed Security A', and Novartis/Alcon arbitrage. His top losers were PHH Corp (multiple securities), Liberty Media Interactive, Macy's, Lyondell, and CIT Group (multiple securities). Touching on some of those specific names, you'll recall that Jamie Dinan of York Capital recently stated he was bullish on Lyondell at the Ira Sohn Investment Conference (notes from the event here). Many hedge funds also own a position in Liberty Media and it appears on Goldman Sachs' VIP list. Lastly, you'll recall that David Einhorn's Greenlight Capital has a large CIT stake.

That wraps up notable information from Third Point's latest update. Be sure to savor these broad portfolio updates from Third Point as it's really all you'll get based on Loeb's new philosophy. Per his recent investor letter, his hedge fund won't be talking about their new positions until *after* they've been publicly disclosed via 13F filings. As such, these sector breakdowns are all we'll get in the mean time. As always though, we'll continue to monitor the SEC filings like a hawk. Recent disclosures made by Third Point in that regard include a stake in Xerium Technologies as well as a newly revealed position in Roomstore.

For more resources from Third Point, we of course point you to Dan Loeb's recommended reading list.