Hound Partners Boosts Tesoro Holdings

Johnathan Auerbach's hedge fund firm Hound Partners has filed a 13G with the SEC regarding their position in Tesoro (TSO).  Per the filing, Hound now owns 7.08% of the company with over 9.3 million shares.

This is a sizable increase of over 7.8 million shares since their last disclosure from the end of 2013.  The filing was required due to activity on January 24th.

You can view Hound Partners' other recent activity here.

Per Google Finance, Tesoro is "an independent petroleum refiners and marketers in the United States. The Company’s subsidiaries, operating through two business segments: manufacture and sell transportation fuels. Its refining operating segment (refining), which operates seven refineries in the western United States, refines crude oil and other feedstocks into transportation fuels, such as gasoline, gasoline blendstocks, jet fuel and diesel fuel, as well as other products, including heavy fuel oils, liquefied petroleum gas, petroleum coke and asphalt."

Best Ideas Panel From Alpha Hedge West Conference: Billick, Gibson & Twitchell

Next up in our series of notes from the Alpha Hedge West Conference is the best ideas panel featuring Kurt Billick (Bocage Capital, Peter Lupoff (Grayco Alternative Investments, Worth Gibson (Forest Hill Capital), and Paul Twitchell (Whitebox Advisors).


Best Ideas Panel at the Alpha Hedge West Conference

Kurt Billick: Best idea is companies owning US Refining assets.  Advantage over peers.  US growing production significantly.  By Mid 2014 more gas at gulf than refining capacity.  Input cost will go down.  Also, natgas used to refine oil provides another cost advantage.  Finally, refiners can use MLP's to reduce cost.  Likes Marathon, Holly, Tesoro and Northern Tier.

Peter Lupoff:  Seismic Shift Towards A New Social Contract, Quantitative Strategy.  Div paying stocks outperform in down market.  Divs add fixed income component to equities.  Social contract is trend now.  Social contract looks at ROIC and FCF.  Shareholder friendly behaviors and events, dividends and increases, special dividends, buybacks, spinoffs, etc.  Social contract not altruistic.  Done for survival.  Div rate not good enough.  Key is sustainability of div vs debt financed divs.  Governance is key.

Worth Gibson: Long/Short Equity.  Over $700M in AUM.  Based in Little Rock, Arkansas.  Focused on community and regional banks.  Best idea is CenterState Banks (CSFL).  Like good geographic economies, seasoned management, strong capital, strong shareholder value enhancement strategy, expanding market share profits and tangible BV, heavily discounted valuation.  Center State Banks:  Assets up 125% vs 4.1% for index from 12/31/08 to present.  Will grow earnings.  Sees stock up 90% over next 2 years with 20% growth in BV each year and BV multiple growing to 2 to 1.

Paul Twitchell:  View biggest risk to investors is rapid increase in rates.  Originally was just short on rates.  Now with some rise in rates, they've found complicated sub prime investment with positive carry of 7% to 9% with no rate change.  With shock from higher rates investment still does well.  Investment basically has coupon payment but no return of principle.

How concerned is everyone about the interest rate environment?

WG> When they've run sensitivity analysis to rates, their banks perform favorably.

PL> Companies that have opposite of social contract are good potential shorts.

KB> Lots of companies will get hurt by taking advantage of low rates... i.e. unsustained large dividends.

 

Be sure to check out the rest of our summary of the Alpha Hedge West Conference.

Dan Loeb Buys Herbalife, Morgan Stanley & Tesoro: Third Point Q4 Letter

Let the battle begin.  Dan Loeb's hedge fund Third Point has started a long position in Herbalife (HLF), he revealed in his Q4 letter to investors.  He also filed a 13G with the SEC disclosing that Third Point owns 8.24% of the company as of January 3rd.

Loeb Long Herbalife

Readers will recall that we recently posted up Bill Ackman's short presentation on HLF where he called it a pyramid scheme.  Brian Sullivan tweeted that Andrew Ross Sorkin spoke with Third Point, who believe there's no evidence HLF is a pyramid scheme in their research.

Third Point believes in the compounder thesis that the stock was trading at an attractive discount (after Ackman's short presentation).  Third Point writes,

"Applying a modest 10-12x earnings multiple suggests Herbalife's shares are worth $55-68, offering 40-70% upside from here and making the company a compelling long investment ... Given that the company has historically traded more in the 12-14x range (and traded at 16-20x earnings through much of 2011 and early 2012), the opportunity for the company to tell its side of the story tomorrow at its Analyst Day in New York, and the significant short interest, we believe shares could even trade well about our current price target."

So, you now have two hedge fund heavyweights: 1 long, 1 short.  Who wins?  Only time will tell.  Now all we need is David Einhorn to toss his hat in the ring as well.  After all, in May of this year Einhorn popped up on a HLF earnings call and started asking questions.  However, he has not disclosed a position long or short.

 
Third Point Starts Morgan Stanley & Tesoro Positions

While the HLF position will get all the focus, we also wanted to highlight that Third Point disclosed a new position in Morgan Stanley in their Q4 letter as well. They feel the company is a turnaround story and point to the stock trading at a 20% discount to tangible book, down from the 35% discount when they acquired shares at an average price of $16.77 per share.

The hedge fund also bought shares of refiner Tesoro (TSO).  They write, "we see Tesoro generating about $9 per share in annual excess FCF on a normalized basis and our expectation is that shares can double from the current price of $40.  We believe the Q3 story was only the beginning, and are happy to own Tesoro for its next few chapters."

Embedded below is Dan Loeb & Third Point's Q4 2012 letter to investors:



 

For more on this hedge fund manager, we just yesterday posted up how Third Point ramped up net long equity exposure.