Elif Aktug Long Mead Johnson Nutrition: Sohn London Presentation 2015

We're posting up notes from the Sohn London Investment Conference 2015.  Next up is Elif Aktug of Pictet Asset Management who pitched a long of Mead Johnson Nutrition (MJN).


Elif Aktug's Sohn London Conference Presentation 2015

Long Mead Johnson (NYSE: MJN) 

Mead Johnson is the global leader in baby milk formula. Baby food is a high growth product driven by population growth especially in emerging markets and the US.

Mead is beefing up its e-commerce presence in China. It is also going to launch a super-premium product in China next year. The termination of China’s one child policy will generate more business.

The industry is consolidating and Mead Johnson could be a takeover target. A cost cutting programme has been recently implemented and the company is buying back 10% of the shares.


Be sure to check out the rest of the Sohn London Conference presentations.

What We're Reading ~ Analytical Links 8/22/13

Rising markets batter short sellers [WSJ]

What has QE actually accomplished? [Mauldin Economics]

Cash is a drug for investors, redux [Abnormal Returns]

The best value investing quotes [Old School Value]

ESPN holds talks for web-based TV [Bloomberg]

Chinese search for infant formula goes global [NYTimes]

Barnes & Noble (BKS) reverses strategy in train wreck of a call [GigaOm]

8 pivotal acquisitions made by Google (GOOG) [Hongkiat]

In-depth reports on for-profit educators [Senate.gov]

Is the new Gmail killing email marketing? [BusinessWeek]

Life after Siri: Nuance's (NUAN) climb to being your digital assistant [Forbes]

On gold losing its shine [Telegraph]

Overseas investors spend $50 billion on Florida real estate [BizJournals]

JPMorgan's latest guide to markets [JPMorgan]

Newly revealed 1975 letter from Warren Buffett [Fortune]

Phone companies are winning new TV watchers, cable & satellite not so much [GigaOm]

What We're Reading ~ Analytical Links 7/10/13

On saving investors from themselves [WSJ]

Smart and stupid arguments for active management [Reformed Broker]

Incorporating right-brain thinking into your investment process [Investing 501]

How gold lost its luster [The Big Picture]

A dozen things I've learned about the psychology of investing [25iq]

Steel: an inferno of unprofitability [The Economist]

On dealing with a rising interest rate environment [WSJ]

30-year mortgage rates surge to highest level in 2 years [Zillow]

The Dow Jones Index between 1789 and today [Go Infront]

MJN, ABT, NSRGY: China investigates foreign makers of baby formula [WSJ]

DVA: dialysis pay would drop $970 million under CMS proposed rule [BNA]

DIS: An interview with head of ESPN John Skipper [HollywoodReporter]

Talk of mergers stirs cable TV's big players [NYTimes]

Labor market spider chart [Federal Reserve Bank of Atlanta]

The best investment advice you'll never get [San Francisco Magazine]

Merchant banks make a comeback [WSJ]

The scam Wall Street learned from the mafia [Rolling Stone]

A report on Corrections Corp of America (CXW) [Scribd]

Introducing the Winklevoss Bitcoin trust [FT Alphaville]

Dan Loeb & Third Point's Latest Positioning & Exposure

Dan Loeb's Third Point Offshore Fund recently released its January performance and the fund was up 3.9% for the month compared to a 2.4% return in the S&P 500. To date, Third Point has seen 18.9% annualized returns with a low correlation to the market (0.42).

Equity Exposure

In equities, Loeb's hedge fund has its highest net long exposure in basic materials at 16.4% net long. Their second highest exposure comes with a 12.9% net long position in the consumer sector. In total, Third Point is 68.9% long and -7.9% short, leaving the fund 61% net long.

Credit Exposure

Loeb is 31.1% net long credit with his largest exposure in mortgage backed securities (MBS) at 19.3% net long. He is also 12.3% net long distressed and -10.1% short Government bonds.


Top Positions

As of the end of January, Third Point's top positions remain unchanged from previous months:

1. Gold (physical)
2. Delphi (multiple securities held)
3. Chrysler (multiple securities held)
4. Potash (POT)
5. Lyondell Basell (LYB)


Top Winners & Losers

Third Point's portfolio attributed positive performance in the month to shares of Potash (POT), Smurfit-Stone Container (SSCC), Massey Energy (MEE), NXP Semiconductor (NXPI), and Aveta. We recently highlighted how Third Point opposes SSCC's takeover and other hedge funds have been active in the name as well. SSCC is one of the many post-reorganization equities found in Loeb's portfolio. Last year we cited how Third Point likes post-reorg equities and just recently we noted that John Paulson likes them too.

Regarding his position in NXP Semiconductor, Loeb highlighted NXPI in a recent letter. The company is involved in near field communications and is seen as a prime play on mobile payments. Third Point also saw solid performance from its position in Massey Energy as the company received a takeover offer from Alpha Natural Resources (ANR).

Positions that negatively affected Third Point's portfolio last month include Gold, Brenntag AG (ETR:BNR), Mead Johnson Nutrition (MJN), African Barrick Gold (LON: ABG), and Accuride (ACW).

To learn to invest like this hedge fund manager, check out Dan Loeb's recommended reading list.

Why Hedge Funds Like Mead Johnson Nutrition (MJN)

In our hedge fund portfolio tracking series we noticed that quite a few long/short equity funds added shares of Mead Johnson Nutrition (MJN) in the fourth quarter of 2009. In a recent letter to investors, Dan Loeb explained the rationale behind his hedge fund Third Point's position in MJN and we thought this would be a perfect time to examine just why so many hedgies are fond of this company.

Mead Johnson Nutrition (MJN) completely separated from Bristol-Myers Squibb (BMY) in December of 2009. MJN is a leading infant formula producer and carries the well known brand Enfamil, making it a definitive consumer staples play. The company has a truly global footprint as it garners large market share in North America and the rising world with over 58% of their sales coming from emerging markets. Loeb certainly likes their attractive earnings growth noting that, "once birth rates normalize in the developed world, the company will generate one of the fastest long-term sales and profit growth rates in the large cap consumer staples universe."

What's interesting is that Loeb's hedge fund has labeled this a risk arbitrage investment and sees MJN as a prime takeover target. In his investor letter, he identifies Nestle or Danone as companies that are big enough to acquire MJN. He explains that, "both companies are focused on health and wellness, have acquired infant nutrition assets in the past (Nestle paid 15.7x EBITDA for Gerber and Danone paid 21.7x EBITDA for Numico)." However, Loeb notes that investors might have to wait a while before MJN is potentially acquired as there are always various regulatory, tax and legal complications in the mix. And, he is more than happy to wait given MJN's emerging markets growth. For more of our coverage of Dan Loeb, we recently looked at Third Point's equity portfolio as well as their performance and exposure levels.

Now that we know the basics of the hedge fund thesis for Mead Johnson Nutrition, let's take a little bit closer look at some of the fundamentals. MJN has a market cap of over $10 billion, trades at an EV/EBITDA of 14.7, a trailing P/E of 25 and a forward P/E of 18.7. It has a PEG ratio of 2.26 and a price/sales of 3.5. These figures illustrate how you're paying up for the substantial emerging markets growth this company provides. This is seemingly the definition of a G.A.R.P. (growth at a reasonable price) investment.

Mead Johnson has profit margins of around 14%, revenue of over $2.8 billion, EBITDA of over $760 million, and quarterly earnings growth (year over year) of almost 38%. Insider ownership comes in at just over 6% and shares are trading near their 52-week high of $50.35. And those of you wanting a technical look at the stock can get an instant chart analysis of MJN here.

Overall, it's an interesting thesis from Loeb's Third Point and we'd imagine many other firms agree that MJN is a solid company by itself (high quality business), but is also fair game as a prime acquisition target. Some of the largest institutional owners of MJN shares include Blackrock, Owl Creek Asset Management, hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Stephen Mandel's Lone Pine Capital, and Dan Loeb's Third Point, among many others. It will be interesting to see if hedgies have continued to add shares of MJN in the current quarter as shares have been marching higher as of late.

Lastly, we make note that MJN has been popping on all sorts of hedge fund related data sets, including Goldman Sachs' VIP list, the list of top hedge fund holdings, and throughout our hedge fund portfolio tracking series. It was by far one of the most added stocks in the fourth quarter by hedge funds. Obviously, hedgies are bullish on MJN and now we have a better look as to why.

Taken from Google Finance, Mead Johnson Nutrition is "a pediatric nutrition company. Its Enfa family of brands, including Enfamil infant formula, is a global brand franchise in pediatric nutrition. The Company’s product portfolio addresses a range of nutritional needs for infants, children and expectant and nursing mothers. The Company markets its portfolio of more than 70 products to mothers, health care professionals and retailers in more than 50 countries in Asia, North America, Latin America and Europe."

Dan Loeb's Third Point Still Sees Event-Driven Opportunity: Investor Letter

Thanks to DistressedDebtInvesting for posting this up as below is the latest investor letter from Dan Loeb's hedge fund Third Point. We've covered Loeb's fund in-depth for some time now and last week we posted up Third Point's recent performance and earlier we took a look at their equity portfolio as well.

In the letter, Loeb touched on some of their notable positions and mentioned that their CIT stake is one of their largest and they believe that the company will transition to a lending institution with a retail deposit base. By reducing its debt and extending maturities, CIT now has time on their side to make this segway. In terms of their mortgage backed securities (MBS) exposure, they mainly have invested in single name senior RMBS stakes. Turning to equities, their Health Net (HNT) stake was purchased when shares were hit due to the loss of the Tricare contract. Third point likes HNT due to quality management and expected increase in profitability. Their stake in Mead Johnson Nutrition (MJN) is described as their classic risk arbitrage play as they see it as a "best-in-class asset" that is solid as a standalone company but is a prime takeover target as well.

Turning to Third Point's investment outlook, Loeb is constructive despite the modest valuations we're currently seeing. Interestingly though, Loeb is worried about various risks that could "unravel quickly in a step function." To try and mitigate this, Third Point has put on various tail risk hedges. Lastly, it was interesting for Loeb to note that they have avoided certain 'consensus' hedgie trades such as long gold, commodity stocks, and emerging markets. While Third Point has taken their exposure down a bit since its peak in January, they still remain net long distressed debt and MBS as we noted in Third Point's recent performance.

Embedded below is Third Point's fourth quarter investor letter:



You can directly download a .pdf here.

For more of our coverage of this hedge fund, head to Dan Loeb's recommended reading list as well as our post on Third Point's portfolio.