Notes From Great Investors Best Ideas Conference (GIBI) Dallas: Einhorn, Pickens, Gabelli

Below are some notes from the 2016 Great Investors Best Ideas (GIBI) conference in Dallas, TX.  It featured prominent investors sharing investment ideas to benefit the Michael J. Fox Foundation for Parkinson's research and Vickery Meadow Youth Development Foundation.


Notes From Great Investors Best Ideas (GIBI) Dallas Conference 2016

David Einhorn (Greenlight Capital):  Likes Mylan (MYL), thinks the Epipen situation is overblown relative to the rest of their business as they're mainly in generic drugs.  "So the earnings that we're looking at in 2018 are in the low $6's and we think only about 25 cents of it comes from EpiPen, so you're gonna earn something in the high $5s, excluding EpiPen and the stock's today in the mid $30's."

Contrasted the situation to that of Mallinckrodt (MNK) which bought QuestCor, a formerly highly shorted hedge fund name.  Their Acthar Gel drug has raised prices from $40 in 2001 up to a whopping $40,000 a dose but you don't hear about it as much because less people use it but says they're more exposed to potential health care focus on lowering drug prices given Acthar is a much larger portion of MNK's profit. 

Thinks General Motors (GM) is cheap and can earn its entire market cap before Tesla turns a profit.  Laid it out as follows:  stock could fall 3/4 and still has enough to pay the dividend.  Another quarter of the earnings are stock buybacks so you're basically getting a 5-6% share reduction, a 5% dividend so you're almost getting a 11% return just by sitting around. 

Thinks the Rite Aid (RAD) deal closes and separately also sees upside in Chemours (CC).  You can view his thesis on Chemours in Greenlight's Q2 letter.

Talked about the active vs passive investing debate.  Noted that "It seems to me that passive money management strategies are fundamentally momentum strategies.  In other words, the more the stock goes up, the more it becomes weighted in the index.  The more it becomes weighted in the index, the more important it becomes.  It continues going up, it doesn't ever revert."  Also called stocks like Apple (AAPL), Herc Holdings (HRI), and CIT (CIT) 'very cheap stocks.'



Boone Pickens (BP Capital):  Sees oil at $60 by the end of 2016 and up to $70 by the end of next year.  Likes EOG Resources (EOG) as well as Pioneer Natural Resources (PXD). Says 'you can't miss' on the later, argued that the only thing that can mess up his thesis is a recession.  Says PXD has a huge amount of oil.  (In the past we've posted how David Einhorn has/had been short PXD.)  Pickens says he's up 300% this year



Mario Gabelli (GAMCO Investors): Likes Herc Holdings (HRI), recent spin-off from Hertz Global (HTZ),  as a play on infrastructure: thinks EBITDA margins widen up to 1000 basis points.  Says the biz is growing 4-5% and is a highly fragmented biz but with 3 major players (other two being Ashtead (LSE:AHT) and United Rentals (URI).  Thinks stock triples over next 5 years.  He also posted about HRI on his Twitter account here.



Andy Beal (Beal Financial): He was pretty bearish and argued that government policies are basically depriving them of potential investment opportunities and basically said to get out of everything.  Talked up rental real estate.



Lisa Hess (SkyTop Capital):  Formerly of Loews, now manages SkyTop.  Her pick was Constellium (CSTM) as a proxy for more use of aluminum in automobiles etc.



Caroline Cooley (Crestline Investors):  Long Shutterfly (SFLY).  Says they have 60% market share and likes it as a growth play.  Said she's not worried about competition from the likes of Amazon (AMZN) and others like Snapfish.  Cited Apple trying and failing to compete with a similar service.  Says SFLY earns ten times that of its next biggest competitor, giving them a huge advantage.  Likes new CEO Chris North (previously of Amazon UK) and says company has some potential partnerships in the works and has bought back stock in the past.



Ray Nixon (Barrow Hanley Mewhinney & Strauss):  Talked about active vs passing investing.  Argued Buffett could potentially buy Phillips 66 (PSX) around $100 per share.  We've highlighted how Buffett has been accumulating PSX.


For more coverage of other recent investment conferences, head to our notes from the Sohn San Francisco conference.

Viking Global Boosts Mallinckrodt Position

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding its position in Mallinckrodt (MNK).  Per the filing, Viking now owns 4.9% of the company with over 5.72 million shares.

This is up slightly from the 5.41 million shares they owned at the end of the second quarter.  The filing was made due to activity on August 21st.

We've also highlighted some of Viking Global's short positions here.

Per Google Finance, Mallinckrodt is "a global specialty pharmaceuticals company. The Company develops, manufactures, markets and distributes both branded and generic specialty pharmaceuticals, active pharmaceutical ingredients (API) and diagnostic imaging agents. The Company uses its API products in the manufacture of its generic pharmaceuticals and also sells them to other pharmaceutical companies. The Company operates through two segments: Specialty Pharmaceuticals and Global Medical Imaging. The Company’s Specialty Pharmaceuticals segment develops, manufactures and sells, through its Brands business, drugs, including EXALGO (hydromorphone HCl) Extended-Release Tablets and GABLOFEN. The Company’s Global Medical Imaging segment develops, manufactures and markets contrast media and delivery systems (CMDS). The Company offers INOMAX Total Care (inhaled nitric oxide), a neonatal critical care product."

Paulson & Co Boosts Mallinckrodt Stake Again

John Paulson's hedge fund firm Paulson & Co has filed a Form 4 with the SEC regarding their stake in Mallinckrodt (MNK).  Per the filing, Paulson bought 200,000 MNK shares at $69.6507 on July 31st and 75,000 shares at $69.4541 on August 1st.

After these buys, Paulson & Co now owns 6,999,800 shares of Mallinckrodt. As we've detailed previously, Paulson has been buying MNK repeatedly after they received an option to increase their stake to 20% of the company.

Mallinckrodt has announced an agreement to acquire the controversial Questcor Pharma (QCOR), which has been a favorite short play of many hedge funds.  While Barry Rosenstein's JANA Partners has owned MNK as well, David Einhorn's Greenlight Capital recently revealed in their Q2 letter that they would like to be short the combined entity, primarily due to QCOR.

Per Google Finance, Mallinckrodt is "a global specialty pharmaceuticals company. The Company develops, manufactures, markets and distributes both branded and generic specialty pharmaceuticals, active pharmaceutical ingredients (API) and diagnostic imaging agents. The Company uses its API products in the manufacture of its generic pharmaceuticals and also sells them to other pharmaceutical companies. The Company operates through two segments: Specialty Pharmaceuticals and Global Medical Imaging."

Paulson & Co Adds To Mallinckrodt (MNK) Stake

John Paulson's hedge fund firm Paulson & Co has filed a Form 4 with the SEC regarding their position in Mallinckrodt (MNK).  Per the filing, Paulson acquired 786,207 shares on  May 7th, 8th, and 9th at prices between $73.0131 and $76.8431. 

After these transactions, Paulson now owns over 6.7 million MNK shares.  For a reference point, they owned 5.6 million shares at the end of 2013 per their 13F filing.  The hedge fund was recently granted an option to increase its stake in MNK to 20%.

Mallinkckrodt has been one of the many pharmaceutical plays involved in M&A lately.  After acquiring Cadence Pharmaceuticals, they recently announced an agreement to acquire the controversial Questcor Pharma (QCOR).  Barry Rosenstein's hedge fund JANA Partners also has a sizable stake in MNK as well.

Per Google Finance, Mallinckrodt is "a global specialty pharmaceuticals company. The Company develops, manufactures, markets and distributes both branded and generic specialty pharmaceuticals, active pharmaceutical ingredients (API) and diagnostic imaging agents. The Company uses its API products in the manufacture of its generic pharmaceuticals and also sells them to other pharmaceutical companies. The Company operates through two segments: Specialty Pharmaceuticals and Global Medical Imaging."

You can view other portfolio activity from Paulson & Co here.

Lee Cooperman's Thesis on Covidien & Sirius XM Radio: Omega Advisors Q1 Letter

Lee Cooperman's hedge fund Omega Advisors' Overseas Partners returned 10.9% in the first quarter of 2013 and has seen annualized returns of 16.6% since inception.  We wanted to post an excerpt from Omega's Q1 letter highlighting Cooperman's thesis on Covidien (COV) and Sirius XM Radio (SIRI).


Covidien (COV): A Spin-Off Play

Cooperman likes Covidien because the company is spinning off a lower margin, lower growth business, Mallinckrodt (MNK).  He fancies the standalone COV business afterwards and writes about the spinoff:

"First, it will enable MNK to invest more appropriately in maximizing a number of underappreciated  opportunities in its pharma pipeline, while pruning assets with sub-optimal growth characteristics. Second, by  divesting itself of the lower margin and lower growth MNK businesses, stand-alone COV, which operates in  attractive medical device and supply segments with favorable competitive dynamics and end-market growth,  will drive margin expansion that should translate into a higher multiple in-line with its comparables. We further  expect COV to pursue actions, including cost reductions and capital deployment (noting the recently  announced $3-billion share-repurchase authorization on top of the $425m outstanding on its previous  authorization) to offset the transitory transaction-related tax and other dis-synergies from the spin, thus driving  upside to consensus pro forma estimates. We estimate new COV will generate EPS of $4.58 in FY14 and $5.13  in FY15, while MNK will generate $0.41 in FY14 and $0.48 in FY15, above pro-forma street estimates. Using  conservative target P/E multiples, our sum-of-the-parts valuation implies 25% upside over the next 12 months  against limited downside given the current discount multiple to peers, creating an attractive risk/reward in the  stock approaching the mid-year spin-off of MNK that is likely to act as a catalyst for the shares."

COV has been largely favored by 'vanilla' managers such as mutual funds and index funds.  Looking at the top holders, there weren't many hedge funds involved as of the end of Q1 but that could have changed since then due to the impending spin-off.


Omega's Thesis on Sirius XM (SIRI)

Cooperman's fund has held a SIRI position for a while, but continues to like the name because the company has a ton of subscribers and has negotiating leverage when acquiring exclusive content.  Omega has identified four growth drivers for Sirius XM:

"First, SIRI can be more proactive in  addressing the used-car market and converting people who have the hardware in the car into paying subscribers  at little to no cost. Second, a rising SAAR lends itself to higher additions from new-car sales. Third, current  estimates of almost 100-million cars with SIRI preinstalled by 2017 points to massive potential over the next  few years compared with the current installed base. And fourth, the price hike announced in 2011 and  implemented over the last year demonstrates significant pricing power embedded in this model. We believe  that the best way to value SIRI is on a free-cash-flow per share metric as the company has over $7 billion in  gross NOLs, is buying back shares aggressively, and at these levels the amount of NOL per share increases via  the buyback. Therefore, the more aggressive SIRI is, the longer the NOL lasts per share...to the point where, in  our models, if the stock stays at $3.00 per share, it is possible to buy back the entire company before the NOL  runs out. We think downside is limited and see significant potential in the years ahead for SIRI, with a price  objective of $5 using a low-teen multiple of 2015 cash flow."

SIRI has been a favorite play among many hedge funds.  While Omega Advisors is one of the top institutional holders of SIRI, other hedge funds involved as of the end of Q1 include: Blue Ridge Capital, Coatue Management, Slate Path Capital, and Hound Partners.

Not to mention, John Malone's Liberty Media (LMCA) has amassed quite a sizable stake in SIRI


Omega Looking At Infrastructure Plays Too

Cooperman and his colleague Steve Einhorn point out in their Q1 letter that infrastructure-related investments should do well going forward and they've been searching for potential investments as they see a quest for energy independence and a manufacturing renaissance as catalysts.

For more from this hedge fund manager, we recently highlighted Omega's new position in PennyMac Financial Services and also flagged  Cooperman's market thoughts from the SALT Conference.