What We're Reading ~ 10/7/15

Superforecasting: The Art and Science of Prediction [Philip Tetlock & Dan Gardner]

Fat tails, thin ice [Jason Zweig]

Are you prepared for the next bear market? [Fortune]

Most CFOs think the US market is overvalued [Alpha Architect]

Putting a price tag on the Volkswagen scandal [Aswath Damodaran]

A pitch on beaten down Sun Edison [Bronte Capital]

Case study on capital allocation and Rockwood Holdings [Before Losing My Sanity]

Do as they do: a guide to insider activity [Dead Companies Walking]

A look at Cable One [Punch Card Blog]

Some stock picks from François Rochon [Montreal Gazette]

How the Bloomberg terminal made history and stays relevant [FastCompany]

Sneaker wars: inside the battle between Nike and Adidas [GQ]

The decline of 'big soda' [NYTimes]

China's middle class dreams in peril [WSJ]

Can Comscore/Rentrak go toe-to-toe with Nielsen? [Variety]

Google Fiber's real innovation [Beyond Devices]

Why we fall for bogus research [Bloomberg View]

Alcoa and the painful business of making aluminum [Reuters]

The frustrating life of a McDonald's franchisee [Bloomberg]

Stock Pick Performance From Value Investing Congress Speakers Presenting at September's Event

The Value Investing Congress is only a few weeks away and will take place on September 16th & 17th in New York.  MarketFolly readers can receive discounted admission by clicking here and using code: N13MF7  This code expires tonight so be sure to take advantage.


Performance of Last Year's Picks From Speakers

We thought we'd check in on the performance of the stock picks from last year's Value Investing Congress.  These picks are from speakers who presented last year that will also be presenting again this year.

Here's the performance breakdown from October 3rd, 2012 until August 29th, 2013:

- 17 out of 21 picks outperformed the S&P 500

- Average performance of picks: +49%

- Performance of S&P 500 over same time frame: +13.3%


Jeff Ubben's Picks
Long Valeant Pharmaceuticals (VRX) +77.1%
Long Moody's (MCO): +44.2%
Long CBRE (CBG): +14.3%
Long Motorola Solutions (MSI): +11.7%

He also mentioned these names: Halliburton (HAL): +42.5%, Adobe (ADBE) +41%, & C.R. Bard (BCR): +9.8%


Mick McGuire's Picks
Long Gencorp (GY): +50.5% 
Long Brookfield Residential Properties (BRP): +39.6%

Long Alexander & Baldwin (ALEX): +28.7%


Alex Roepers' Picks
Long Rockwood Holdings (ROC): +34.9%
Long Energizer (ENR): +34%
Long Clariant (CLN VX): +33.9%
Long FLSmidth (FLS DC): -5.7%
Long Joy Global (JOY): -45.1%


Whitney Tilson's Picks
Long Netflix (NFLX): +409.8%
Long Howard Hughes (HHC): +46%
Long Berkshire Hathaway (BRK.A): +26.1%


Guy Gottfried's Picks
Long Canam Group (TSE:CAM): +81.2%
Long ClubLink Enterprises (TSE:CLK): +19.1%


Bob Robotti's Picks
Long Calfrac Well Services (TSE:CFW): +34.8%


As you can see, these managers' picks performed quite well on average.  And don't forget: each one of them will be presenting their new picks at this year's event in a few weeks along with plenty of other new speakers (full list of speakers here).


Hear Ubben, McGuire, Roepers & More Pitch Their Latest Ideas

Find out what stock picks these hedge fund managers will pitch at this year's Value Investing Congress in September.  Market Folly readers can save $800 off admission by registering here and using code: N13MF7  Remember, the code expires tonight!

What We're Reading ~ Hedge Fund Links 4/26/13

David Tepper builds stake in Energy Holdings debt [ValueWalk]

Mark Anson's formula for choosing a good hedge fund for your portfolio [CFA]

How hedge funds need to adapt [All About Alpha]

The mind of DoubleLine's Jeffrey Gundlach [Crossing Wall Street]

George Soros' European solution to the Eurozone's problem [George Soros]

JANA Partners says Rockwood worth $80 in possible takeover [Bloomberg]

ValueAct takes $2 billion Microsoft (MSFT) stake [Yahoo News]

John Paulson says he's staying the course on gold [Hedgeworld]

Rob Arnott: most hedge funds disappoint [Term Sheet]

Hedge fund managers mixed on 2013 outlook [HedgeCo]

Billionaire Carl Icahn's tale of aggression [Forbes India]

Hedge fund gold wagers defy worst slump in 33 years [Bloomberg]

Hedge funds plowed into gold as market looked vulnerable [Hedgeworld]

Devitt sees consolidation in outlook for fund of funds [Investment Europe]

Hedge funds find new Swiss rules good for business [Reuters]

Singapore will replace Switzerland as wealth capital [CNBC]

Alex Roepers' 5 Investment Ideas: Value Investing Congress

Continuing coverage, we're posting up notes from the Value Investing Congress.  Below are notes and the presentation of Alex Roepers of Atlantic Investment Management.  His presentation was entitled 'Corporate Action, Activism & Takeovers: Gaining Momentum.'

Atlantic: $1.8B in AUM, concentrated in 5-7 core positions in US.  Investment grade, mid-sized.  Uses significant minority positions, 2-7% to for shareholder activism.  Strict buy/sell discipline, buy 7x EBIT, sell around 11x.  1-2 year holding period is typical.  Largest fund 5-7 stocks, that’s it!  Averaged 18.5% annually over 20 years vs. 8.5% for the SPX.  

On Investor Activism

Last year he said environment was good for corporate action, activism and takeovers (JANA's Barry Rosenstein agrees).  Today we have:

1. Attractive valuations, because people are VERY gun-shy due to market crashes.
2.  Strong balance sheets now, much better post-2008
3.  Private Equity under pressure to put capital to work
4.  Super low interest rates, easy to make acquisitions
5.  Moderate organic growth due to economy; "Need to buy growth"
6.  Some hostile in M&A, nowhere near record levels of past  

Earnings yield of SPX is 6.8% vs. 1.8% 10 year treasury.  Expect the decade long outperformance of bonds to reverse; stocks will outperform next ten years.  He also showed the same chart of fund flows of investors pulling money from stocks into bonds.  "You will have phenomenal returns in equities if you pick your stocks right."  

PE firms have $400B in dry powder for buyouts. VIX is greatly reduced, which helps create environment more buyouts. Japanese and Chinese are stepping up cross-border M&A.

Atlantic's Approach:

1. Sufficient size and liquidity. >$1B to move the needle, but <$10B or it's too big to get a deal done 2.  Strong strategic franchises with high barriers to entry
3.  Attractive valuations: <8x ebit="ebit" forward="forward" nbsp="nbsp" p="p">4.  Strong balance sheets: EBITDA> 4x interest expense
5.  Predictable and recurring cash flows, high MRO content
6.  Low insider ownership <10 blocking="blocking" by="by" family="family" held="held" management="management" nbsp="nbsp" or="or" p="p" shareholders="shareholders">7. Noticeable activity in a sector; e.g. chemicals, mining equipment
8.  Liquidity.  Take 2-7% ownership stakes, no board seats, so proxy battles
9.  Write detailed shareholder engagement letters and have active discussions with management  

Recap of last year's investment ideas: ENR up 5%, ASH up 59%, FLS up 63% (sold it), MTX GY up 22% (sold it), and ATO FP up 53%.


Roepers' 5 Investment Ideas

Energizer (ENR).  $75.43, $4.9B market cap.  47% of business is batteries; the other 53% is personal care products: Schick shaving, Hawaiian tropic skin care.  Margins should be higher; eps should be $7.50 up from $6.00.  Target price is about $100 in 6-12 months.  

Rockwood Holdings (ROC).  $49.  $3.9B market cap. Specialty chemical company.  Lithium, Advanced Ceramics, TiO2, Surface treatment, Performance additives.  Stock trades on the TiO2 business, but they should IPO or spin this segment.  Real bull case here is Lithium, 8% organic growth without the electric car.  #2 lithium producer in the world.  Sum of the Parts (SOTP) to get valuation.  Catalysts are IPO of TiO2 business. Target price $70/share in 12-18 months based on 10x 2013e EBIT.   

Clariant (CLN VX).  Swiss conglomerate.  Disposal group, pigments, oil and mining services.  Being restructured, de-levering now.  46% capital appreciation potential in a year.  

FLSmidth (FLS DC), Danish mining supply company.  Concerns about China slowing.  Cement, Customer service for mining, and non-ferrous metals.  They help mining companies set up operations.  33% upside at DKK 467/share in 12-18 months.   

Joy Global (JOY).  $59.41.  Coal mining equipment.  Coal is out of favor.  Half surface mining, half underground.  Actually though, a lot of coal buying out of the most green countries, Japan and Germany.  Growth industry, but not in the US as much.  But he says all the switching from coal to gas that could happen, has already.  Stock has dropped in half this year on China slowdown and emergence of natural gas in the US.  Says 2013 is the trough year, but it will grow over time.  Their only competition was bought for 13x by CAT.  Very likely takeover candidate. Price target is $105 in 12-18 months based on 11x FY13E EBIT, 77% upside.


Q&A Session: 

1.  Why did ENR not do well?  Part of it was FX, the Euro. Also they've been slow and shareholders have become disenchanted with management.

2. Still own Owens Illinois?  They own 6.5% of the company, number one glass bottle maker in the world.  40% of business from Europe, demand a bit slow and FX issues, but trades at only 6x next year P/E and they are paying down debt.  Trades at only $18 now.

3.  Will JOY survive the "war on coal?"  It still generates 35-40% of the electricity in the US.  Gas prices coming up. US segment is only 22% for JOY.  He says when being activist "I'll fade out of the stock when you achieve X, Y and Z" which makes people listen to them.

Embedded below is Roepers' slideshow presentation from the Value Investing Congress: 





Check out the rest of the hedge fund presentations from the Value Investing Congress.

Dan Arbess' Xerion Fund Likes Chemical Stocks

Per Bloomberg's Hedge Fund Brief, Dan Arbess' Xerion Fund (part of Perella Weinberg Partners) is betting on chemical stocks. In particular, he likes those companies that utilize lower-cost natural gas in production, such as LyondellBasell (LYB).

Chemical maker LYB emerged from bankruptcy last year and has been a big favorite amongst investment managers. In fact, LyondellBasell was a consensus buy in the fourth quarter amongst hedge funds we track in our Hedge Fund Wisdom newsletter. In addition to Xerion, Dan Loeb's Third Point LLC holds a large stake in LYB as it is their fifth largest position.

Arbess said that, "There are a lot of companies that can just take higher feedstock costs and pass them right on to their customers. They are being sold off very aggressively right now and can be picked up. We liked them 10-15% higher before the sell-off; we love them down here." In addition to LYB, Arbess fancies Solutia (SOA) and Rockwood Holdings (ROC).

Arbess also reiterated his positions in exploration and production oil companies in Brazil and West Africa. We've posted about these investments in a previous investor letter that detailed Xerion's 2011 investment strategy & outlook.