ValueAct Capital Files Form 4 on Seagate Technology (STX)

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC regarding its stake in Seagate Technology (STX).  Per the filing, ValueAct now owns over 22.4 million shares.

The filing notes they entered into forward purchase contracts with an exercise date of June 2nd, 2018 and expiration date of December 3rd, 2018.  In total, these contracts represented 946,100 shares and obligated ValueAct to purchase shares at varying prices with the bulk coming at $54.72.

This means ValueAct's total STX stake is up from the 21.45 million shares they owned at the end of the first quarter.

For more on this fund, we've also highlighted another stock they've been buying recently.

Per Yahoo Finance, Seagate Technology "provides data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. The company manufactures and distributes hard disk drives, solid state drives and their related controllers, solid state hybrid drives, and storage subsystems. Its products are used in enterprise servers and storage systems applications; client compute applications, primarily for desktop and mobile computing; and client non-compute applications, including various end user devices, such as portable external storage systems, surveillance systems, network-attached storage, digital video recorders, and gaming consoles. The company offers external backup storage solutions under the Backup Plus and Expansion product lines, as well as under the Maxtor and LaCie brand names available in capacities up to 120 terabytes. It sells its products primarily to original equipment manufacturers, distributors, and retailers. Seagate Technology plc was founded in 1979 and is headquartered in Dublin, Ireland."

ValueAct Capital Increases Seagate Stake Again

Jeff Ubben's activist firm ValueAct Capital has filed an amended 13D with the SEC regarding its stake in Seagate Technology (STX).  Per the filing, ValueAct now owns 7.4% of the company with over 21.45 million shares.

Per the filing, ValueAct was buying STX shares on August 23rd through 25th, as well as the 29th and 30th.  In total, they bought 458,600 shares and paid around $31 for the bulk of the buys.

Also, the 13D notes that ValueAct and Morgan Stanley entered into a stock purchase agreement (10b5-1 plan) where MS will buy for the account of VA up to 6 million shares of STX stock.  Purchases can begin as soon as September 1st and will terminate no later than October 31st.

We've also highlighted other recent portfolio activity from ValueAct here.

Per Google Finance, Seagate Technology is "a provider of electronic data storage technology and solutions. The Company's principal products are hard disk drives (HDDs). In addition to HDDs, it produces a range of electronic data storage products, including solid state hybrid drives, solid state drives, peripheral component interconnect express (PCIe) cards and serial advanced technology architecture (SATA) controllers. Its storage technology portfolio also includes storage subsystems and high performance computing solutions. Its products are designed for applications in enterprise servers and storage systems, client compute applications and client non-compute applications. It designs, fabricates and assembles various components found in its disk drives, including read/write heads and recording media. Its design and manufacturing operations are based on technology platforms that are used to produce various disk drive products that serve multiple data storage applications and markets."

ValueAct Capital Boosts Seagate Position

Jeff Ubben's activist investment firm ValueAct Capital has filed a 13D with the SEC regarding its stake in Seagate Technology (STX).  Per the filing, ValueAct now owns 7.2% of the company with 21 million shares.

The filing notes they've had talks with officers and directors of the company and will continue to do so.  ValueAct was buying on July 29th, 31st as well as August 1st, 2nd, 3rd, 4th, 7th, 8th, and 9th.  In total, they purchased 7,184,235 shares in a range between $32.19 and $33.50. 

We've highlighted how recently ValueAct has been trimming numerous positions, and it looks like this is where some of the proceeds ended up.

Per Google Finance, Seagate is "a provider of electronic data storage technology and solutions. The Company's principal products are hard disk drives (HDDs). In addition to HDDs, it produces a range of electronic data storage products, including solid state hybrid drives, solid state drives, peripheral component interconnect express (PCIe) cards and serial advanced technology architecture (SATA) controllers. Its storage technology portfolio also includes storage subsystems and high performance computing solutions. Its products are designed for applications in enterprise servers and storage systems, client compute applications and client non-compute applications. It designs, fabricates and assembles various components found in its disk drives, including read/write heads and recording media. Its design and manufacturing operations are based on technology platforms that are used to produce various disk drive products that serve multiple data storage applications and markets."

Rich Pzena Likes Banks, Hilton, Seagate

Rich Pzena of Pzena Investment Management appeared on CNBC yesterday and said the market has divided into 2 groups: those that are in sync with the 'lower for longer' philosophy and those aren't cheap stocks, and those that are out of sync like financials/energy/materials that are selling for attractive valuations.

"Any stable, low volatility cash flowing stock" is basically overpriced he feels.

He argued financials were intriguing: "If interest rates go up, you make a fortune, but if they don't you make 10% a year." These companies are paying out their earnings.  He owns Citigroup (C) and Bank of America (BAC), among others.

On the market in general, he says that, "The steady decline in the 10-year is what's caused this whole market situation. And now, maybe it's bottoming."

He thinks interest rates will rise this year and then will go gradually higher.  He thinks his stocks are positioned well to weather downturns in the market or rising rates.

"As this interest rate bubble ends, I think we'll see a re-emergence of active management.  There's lot of interesting opportunities that's not in touch with where the money has flowed."

Pzena also preached what he thinks is instrumental to success:  "Volatility is the opportunity for every real investor.  What we do for a living is exploit other people's fear of volatility to be able to buy stocks at a low price.  Volatility has nothing to do with risk.  Volatility is just stuff going up and down.  And risk is losing money."


Pzena's New Pick: Hilton (HLT)

Pzena has also bought Hilton (HLT) and says that apartment REITs sell for twice as much as lodging REITs.  Hilton is splitting into 3 companies by year-end: a fee based management co, a lodging REIT, and a timeshare business.

"The company's depressed because it's in lodging and people are fearful that we're near the end of the upcycle in lodging."

He feels that it's not a spectacular value like the banks are, but for what it is (a leading franchise) it looks good. He notes HLT has 20% share of all hotel rooms under construction.

He thinks the spin-off in the near-term leads to 20% upside.  Post-spin, he hopes the management company would get a higher multiple than the REIT.  But he thinks that may take time to play out as the cashflow evolves.


On Seagate (STX)

This is one of Pzena's larger positions.  Seagate is in the middle of correcting the overcapacity it had.   They've had strong volumes on the enterprise side and he says that's the whole story:  "It's a replacement of storage in the cloud rather than in the device."


For more from prominent investors, head to David Tepper's recent interview, as well as Keith Meister's thesis on YUM and Barry Rosenstein's thoughts on the market.

ValueAct Capital Builds Seagate Stake, Sells More MSCI

Per a Seagate Technology (STX) press release, Jeff Ubben's ValueAct Capital has become one of the company's largest shareholders.  They now own 9.5 million STX shares, up from the 3 million shares they owned at the end of the second quarter.

ValueAct participated in a secondary transaction and has also been invited to join as an observer on Seagate's board.

Partner Mason Morfit said that, "Seagate has a strong storage technology portfolio and is well positioned to benefit from attractive long-term secular trends.  We are excited about the opportunity to work with the Seagate team, at both the Board and management level, to help increase long-term value for all shareholders."

The brand new issue of our Hedge Fund Wisdom newsletter recently analyzed Seagate's main competitor, Western Digital.

Per Google Finance, Seagate is "a provider of electronic data storage technology and solutions. The Company's principal products are hard disk drives (HDDs). In addition to HDDs, it produces a range of electronic data storage products, including solid state hybrid drives, solid state drives, peripheral component interconnect express (PCIe) cards and serial advanced technology architecture (SATA) controllers. Its storage technology portfolio also includes storage subsystems and high performance computing solutions. Its products are designed for applications in enterprise servers and storage systems, client compute applications and client non-compute applications. It designs, fabricates and assembles various components found in its disk drives, including read/write heads and recording media. Its design and manufacturing operations are based on technology platforms that are used to produce various disk drive products that serve multiple data storage applications and markets."


ValueAct Sells More MSCI

Also, per a Form 4 filed with the SEC,  ValueAct has sold some more shares of MSCI (MSCI).  They sold 450,000 shares in total on September 6th-8th at prices of $88.4, $88.5, and $87.6.

After these transactions, Jeff Ubben's firm now only owns 850,900 shares of MSCI.

Per Google Finance, MSCI "offers content, applications and services to support the needs of institutional investors throughout their investment processes. The Company's operating segment includes Index, Analytics and All Other segment. All Other segment comprises ESG and Real Estate segments. The Index operating segment is a provider of investment decision support tools, including equity indexes and equity index benchmarks. The Analytics operating segment consists of products and services used for portfolio construction, risk management and reporting. The ESG operating segment offers products institutional investors use for assessing risks and opportunities arising from environmental, social and governance issues. ESG tools are used to evaluate both individual securities and investment portfolios. The Real Estate operating segment is a provider of real estate performance analysis for funds, investors, managers, lenders and occupiers."

Jim Chanos' Sohn Conference Presentation: Short Hard Disk Drive Makers STX & WDC

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Jim Chanos of Kynikos Associates.  He presented "Mobile Computing Revolution: Collateral Damage in Hard Disk Drives."  He focused on hard disk drive makers Seagate Technology (STX) and Western Digital (WDC), calling them value traps.


Hard Disk Drive Decline: Short STX / WDC

Losers and winners. "Death of the PC” Units are actually just beginning to decline. Tablets increased 142% yoy in Q113. Only had one quarter of declining units so far. Hard drive decline even more slowing, began rolling over earlier than PC, but big snap back after the floods in Thailand.

Western Digital (WDC) & Seagate Technologies (STX) both look "cheap" and he says they are a value trap. 5-6x p/e, 4x EV/EBITDA. Industry consolidation has resulted in better pricing, and stronger margins.

Bulls say proliferation of user-generated data (photos, etc.) will outweigh the effects of PC unit declines.  Short Idea: WDC, STX stocks are soaring, while Dell (DELL) and Hewlett Packard (HPQ) are in decline. But pricing is up from 8% of PC BOM, to 10%.

He says cloud efficiency actually reduces Hard Disk Drive demand. STX short. Says margins will collapse from the 25-30% guidance. Says they have accounting issues, because of acquisition they put $1B in goodwill on the books, this may have goosed their profitability.

STX: Lots of insider selling of the stock. Top 4 officers have sold half their stock in the last 2 years. #3 guy quit last night abruptly. Says it's the PC business with about a year lag. End of 2013 they get hit. (For the converse argument, note he doesn't mention the huge FCF generation, and lack of significant debt).


We've recently also posted up Jim Chanos presentation on China as well as a recent interview about his longs and shorts.

Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.

David Einhorn Sells Best Buy & Dell, Buys Cigna & Coventry Health: Q2 Letter

David Einhorn's Greenlight Capital is out with their Q2 2012 investor letter and Dealbreaker has it posted.  In it, they reveal that they no longer own Best Buy (BBY) or Dell (DELL).  Additionally, they started new stakes in Cigna (CI) and Coventry Health Care (CVH), playing the managed care sector.  Here are some excerpts from the letter:

On Best Buy:  "We thought that the core debate was whether or  not the company could compete with Amazon.  The answer at this point is that maybe it can and maybe it can’t.  (Despite the consensus view, our store surveys have repeatedly shown  that there is no price benefit for consumers to browse at BBY and then purchase at Amazon.)   There has been some deterioration in BBY’s domestic performance, which we attribute to a  lack of a “must have” consumer electronics  product, rather than  an erosion of BBY’s  competitive position.  While we held the shares, three unexpected problems emerged:  First,  BBY depleted $1.3 billion of its cash resources by paying a double-digit multiple for  Carphone Warehouse’s share of the Best Buy Mobile profit stream.  The market promptly revalued those earnings to BBY’s mid-single digit multiple.  Second, in the most recent quarter,  BBY’s international profits collapsed.  In particular, comparable sales in its Chinese business  fell 28% as the Chinese economy appears to have hit a wall.  Finally, the company dismissed  its CEO over his personal conduct, and also removed the Chairman for failing to respond  properly to the CEO’s misbehavior.  As a result, the company has an interim CEO and is  trying to come up with a strategy.  We worried  that this could lead to additional business  disruption so we exited with a loss."


On Dell:  "We had thought that the growth in the non-PC business would be enough to
offset the deterioration in the PC business.  The non-PC growth was smaller than we’d hoped
and the PC deterioration was worse than we’d anticipated.  While DELL has a good balance
sheet, it appears likely that management will try to use much of the cash to try to buy its way
into better businesses.  At a minimum, this will erode some of the value cushion that the cash
balance creates."


On Cigna:  "CI is a managed care company with three primary divisions:  Cigna HealthCare, Cigna Group  Disability and Life, and Cigna International.  Cigna HealthCare, which comprises about 70%  of CI’s profits, offers medium and large companies traditional risk-based insurance, in  addition to administering plans for those that prefer to self-insure.  Cigna HealthCare recently  bought HealthSpring to enter the fast-growing Medicare Advantage market.  Cigna Group  Disability and Life is a low-growth, stable  business. Cigna International, which provides  insurance policies for individuals, as well as insurance and administrative services for multinational companies and governments, is growing at more than 20% per year.  We believe that  CI deserves a higher multiple because the plan administration business is a service business  that doesn’t take risk, and the other divisions do not warrant discounted values.  Our purchase  price of $45.42 per share valued CI at less than 8x estimated 2012 EPS and approximately 6x  our forecast of post Obamacare 2014 EPS.  CI shares closed the quarter at $44.00 each."  Note: CI has since fallen further and you can currently buy it at cheaper prices than Greenlight.


On Coventry:  "CVH is a regional managed care company with operations in the mid-Atlantic, Midwest and  parts of the South.  The company offers commercial risk-based insurance and has an  expanding business in the government-sponsored Medicaid and Medicare programs.   Problems with a recently-acquired three-year contract to provide managed care services to the  Medicaid population in Kentucky caused the company to  significantly reduce earnings  guidance for 2012.  This led to a large drop in the stock price.  We believe the issues related  to the Kentucky contract are manageable and finite, and CVH will return to breakeven or a  profit on this contract in 2013 from a loss this year.  Our average purchase price of $31.22  represents 8x our forecast  for 2014 earnings net of $6 per share of cash and reflects our  estimate of the negative impact of Obamacare.  CVH closed the quarter at $31.79 per share."

We've also recently highlighted some of Einhorn's thoughts on Apple, Green Mountain and Amazon.

Einhorn's top five largest long positions at the end of the quarter (in alphabetical position) were: Apple (AAPL), General Motors (GM), gold, Marvell Technology (MRVL), and Seagate Technology (STX).  We highlighted how Greenlight was adding to their STX position last month.

Instead of waiting for a copy of the letter, we'll send you over to Dealbreaker who already has it posted here.

David Einhorn's Greenlight Capital Adds to Seagate Stake in Size

David Einhorn's hedge fund Greenlight Capital has recently been out buying more shares of Seagate Technology (STX).  Per a 13G just filed with the SEC, Greenlight has disclosed a 5.4% ownership stake in STX with 23,114,026 shares.


Sizable Seagate Stake

These purchases mark almost a 59% increase in their position size since the end of March.  STX shares have fallen from a recent peak of around $32 in May down to current levels of around $22.75 (almost a 30% drop).  This new disclosure was made due to portfolio activity on June 1st.

This activity is interesting because Seagate was already one of Einhorn's top 5 holdings at the end of the first quarter and now they own even more shares.  Not to mention, STX is still trading around (or even slightly below) where Greenlight was recently buying.


Greenlight's Thoughts on STX

From Greenlight's first quarter letter, the hedge fund writes that,

"It is STX's normal practice on earnings calls to provide financial commentary looking ahead only one quarter.  However, in January, STX shared its financial outlook for all of calendar year 2012, forecasting revenues of $20 billion.  The prior consensus was for less than $15 billion.  A good chunk of the increased forecast comes from higher pricing enabled by the industry shortage following the floods in Thailand last year.

STX also announced that it would be using some of its excess cash to ramp up its stock repurchase program, with a target of decreasing outstanding shares by 25%.  When business conditions eventually normalize, the lower share count will enable STX to generate higher earnings per share.

Though the shares advanced from $16.40 to $26.96 during the quarter, the share price remains at a very low multiple of both near-term and longer term earnings.  Based on our somewhat more conservative revenue outlook in 2012, we expect earnings to reach $10-$15 per share this calendar year, before settling at an average of about $5 per share in future years when the industry shortage will have ended."

  
About Seagate

Per Google Finance, Seagate Technology "designs, manufactures, markets and sells hard disk drives. Seagate produces a range of disk drive products addressing enterprise applications, where its products are designed for enterprise servers, mainframes and workstations; client compute applications, where its products are designed for desktop and notebook computers, and client non-compute applications, where its products are designed for a range of end user devices, such as digital video recorders (DVRs), personal data backup systems, portable external storage systems and digital media systems."


For more resources on this hedge fund, head to David Einhorn's slideshow on use of preferreds as well as notes from Einhorn's Ira Sohn presentation.

Greenlight Capital's Q1 Letter: David Einhorn Defends Apple, Still Short St. Joe

David Einhorn's hedge fund Greenlight Capital is out with its first quarter letter to investors.  In it, the hedge fund details why they're long Apple (AAPL), why they're still short St. Joe (JOE), as well as updates on Seagate Technology (STX) and the Japanese Yen.


Net Exposure & Top Positions

Greenlight's average net exposure during the quarter was 36% net long (95% long & 62% short).  Their top five largest disclosed long positions were (in alphabetical order): Apple, Arkema, General Motors, gold, and Seagate Technology.  The hedge fund opened up to new money for the first time since 2008 which is also worth pointing out.


Refuting Apple Concerns

Greenlight presents the 'bear case' concerns often highlighted by investors and then refutes them.  They write,

"1. Too many hedge funds own AAPL.  It's not clear what the objection is here.  We suppose the worry is that there is a herd mentality among hedge funds, and that when one fund sells, there could be a cascade of hedge funds selling shares and the stock price will collapse.  Moreover, if everyone already owns AAPL, who is left to buy it?  Collectively, hedge funds currently hold less than 5% of AAPL's outstanding shares, and no hedge fund ranks among the top 40 holders of the stock.  The average hedge fund has less than 2% of its equity assets in AAPL versus AAPL's 4% weighting in the S&P500, which means hedge funds are actually underweight AAPL."


Einhorn's fund also points out that while many detractors view Apple as a hardware company potentially subject to decline, Apple is actually a software company that has repeated sales of high margin hardware. 

This is a perfect characterization that many seem to miss.  After all, many users bought Mac computers to get away from various viruses and "blue screens of death" often associated with Microsoft Windows.  In order to get the software, though, consumers have to buy the expensive hardware.

For more from this hedgie, head to David Einhorn's presentation at Ira Sohn as well as his slideshow on preferreds.

Embedded below is David Einhorn & Greenlight Capital's Q1 letter to investors:




Einhorn will be presenting his latest stock pick at the Value Investing Congress in NYC in October.  Market Folly readers can receive a discount to the event by clicking here and using code: N12MF3

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

David Einhorn Buys Seagate Technology (STX), Sells Various Stocks

ZeroHedge posted up David Einhorn & Greenlight Capital's Q2 investor letter which reveals that the hedge fund was down 2.5% for the quarter and is now down 5% for the year.

Greenlight noted that the US economy has continued to soften as energy and food prices eroded consumer purchasing power. At the same time, Greenlight points to strong corporate earnings as a positive.

Bought Seagate Technology (STX)

During the quarter, Einhorn's hedge fund saw notable portfolio turnover. Greenlight built a "medium sized long position" in Seagate Technology (STX) with an average purchase price of $16.06 a share (STX currently trades around $16.90). The current issue of our Hedge Fund Wisdom newsletter features an analysis of STX for those interested.

Sold Positions

Greenlight also sold completely out of its position in Cardinal Health (CAH). At the same time, they continue to hold a large position in CAH's spin-off, CareFusion (CFN). You can also see the investment thesis on CFN in a free sample of our newsletter.

Einhorn's fund also sold out of CIT Group (CIT), Yahoo! (YHOO), Vicat SA (France: VCT), MI Developments (MIM), MDC Holdings (MDC), and Xerox (XRX). They also covered their short position in LED-maker Cree (CREE).

While Einhorn sold out of CIT Group, we noted last week that Dan Loeb's Third Point continues to hold CIT as one of their largest positions.

Given that Greenlight sold so many positions, it will be interested to see if they've put that capital to work elsewhere or have merely raised cash levels as a form of protection. We've highlighted one buy as Greenlight purchased Playtech (LON:PTEC) shares. Embedded below is Greenlight's Q2 letter:



If the embedded doc doesn't work, you can view/download it here.

For more from Einhorn, be sure to check out his presentation from the Ira Sohn Conference.

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T2 Partners Year-End Letter: Discussing Longs & Shorts

Whitney Tilson and Glenn Tongue's hedge fund firm T2 Partners released their year-end letter to investors. The letter is one of the most thorough we've seen as it is 27 pages long and includes assessment of both their long and short positions. If you want transparency in the hedge fund industry, here's your barometer.

For 2010, T2 finished up 10.3% net compared to an S&P 500 return of 15.1%. So while they trailed the indices last year, T2 has outperformed since inception, returning 9.1% annualized net versus 2.0% for the S&P. This past year, their pain came from various short positions and essentially 'missing' the quantitative easing round 2 rally.

T2 Partners' top 12 long positions at the end of 2010 were:

1. Grupo Prisa (PRIS & PRIS.B)
2. Microsoft (MSFT) ~ see their thoughts on MSFT here
3. Berkshire Hathaway (BRK.A/B)
4. BP (BP) ~ their thoughts on BP here
5. General Growth Properties (GGP)
6. CIT Group (CIT)
7. Kraft (KFT) and warrants
8. Seagate Technology (STX)
9. Iridium (IRDM) and warrants
10. Automatic Data Processing (ADP) ~ see their presentation on ADP
11. Resource America (REXI)
12. Anheuser Busch InBev (BUD)

While we've presented analysis on T2's longs before, we want to single out Seagate Technology (STX) and CIT Group (CIT) as we haven't seen Tilson talk about these before. He likes STX mainly because it is trading at an absurdly cheap valuation and he thinks fears over the hard drive (HDD) market (versus the solid state drive market) are overblown.

Tilson and Tongue fancy CIT due to the company's potential to capture financing-cost savings. Additionally Tilson writes, "Even more intriguing is the possibility that a healthy bank might acquire CIT, attracted by the enormous earnings leverage available in applying the acquiring bank's much lower borrowing costs to CIT's business model."


T2's top 10 short positions (in alphabetical order):

1. AIG (AIG)
2. Homebuilders (various individual companies plus XHB the ETF)
3. InterOil (IOC) ~ analysis of their short position here
4. ITT Educational (ESI), as well as other for-profit education plays
5. Lender Processing Services (LPS)
6. Lululemon Athletica (LULU)
7. MBIA (MBI)
8. Netflix (NFLX)
9. Salesforce.com (CRM)
10. St. Joe (JOE)

Tilson and Tongue highlight that their short book caused them much pain last year. Accordingly, they set aside a portion of their letter to address how they manage short positions that move against them. In short (no pun intended), they re-evaluate their analysis to determine whether to add to the position, do nothing, or trim/exit.

Specifically, they trimmed their position in Netflix (NFLX) and replaced part of it with put positions. (We posted why Tilson is short Netflix here). They've also done this with other short positions in order to better manage risk. After all, remember that these stakes are merely hedges to their long book as T2 is always net long (they are currently 40% net long).

Embedded below is T2 Partners annual letter to investors for 2010:



You can download a .pdf copy here.

It's great to see a manager with such transparency in an otherwise secretive and guarded industry. T2's portfolio overlaps with positions many other hedge fund managers own that we've highlighted as well.

T2 is short JOE and so is Greenlight Capital (see David Einhorn's short thesis on JOE). While T2 is short ESI, hedge fund Blum Capital is long ESI. And while Tilson and Tongue are short AIG, Bruce Berkowitz's Fairholme Capital is long AIG. It's fun to see hedge funds take different stances on various stocks because that's what makes a market.