We posted up notes from the 2014 Sohn Conference in New York if you haven't seen them. At the event, Larry Robbins of Glenview Capital pitched longs of Humana (HUM), WellPoint (WLP), and Monsanto (MON). The conference has recently released his slideshow presentation and it is embedded below:
Be sure to check out the rest of the Sohn conference notes here.
Showing posts with label WLP. Show all posts
Showing posts with label WLP. Show all posts
Tuesday, May 13, 2014
Larry Robbins' Slideshow Presentation From Sohn Conference: HUM, WLP, MON
Tuesday, May 6, 2014
Larry Robbins Long Humana, WellPoint & Monsanto: Sohn Conference Presentation
We're posting up notes from the Sohn Investment Conference in New
York, produced in partnership with Bloomberg LINK. Next up is Larry Robbins of Glenview Capital who pitched HMO's long like Humana (HUM) and WellPoint (WLP) and also agriculture play Monsanto (MON).
Larry Robbins' Sohn Conference Presentation
They recapped his amazing calls at the conference, including shorting GM, and long the hospitals, which was a blockbuster trade.
Long ideas: Humana (HUM, WellPoint (WLP), Monsanto (MON).
He says "resist the temptation to think 2014 is different from 2013, just because the calendar has changed." Over last 2 years, high yield bonds yield dropped by 200 bps.
Drivers:
1. Cheap valuations on stocks, says SPX 16.1, 14.4x 2015.
2. Lower systemic risk
3. Corporate deployment- management and owners must "lift up."
Concept of "Convertible equity" - an investment in a defensive secular growth business, that also carries call options on value-enhancing events. Need to be more contrarian now. HMOs, and Monsanto, GMO provider are both out of favor.
Managed care. Myth 1: HMO profits are reason healthcare costs are too high. Fact: their profits were only 0.4% of al healthcare spending. HMOs are the only sector of healthcare that haven't recovered. Pain is in the rear view mirror. All headwinds turn neutral or to tailwinds over next 5 years. Greater exposure to Medicare and Medicaid- 22% from 9% in 2007. New management in 4 of 5 biggest HMOs. (HUM, WLP, AET)
HUM: medicare advantage company. Baby boomers are aging, 4x the growth of overall population. HUM taking share. Seniors like medicare advantage. HUM top-line growth 10-15% range. "Options:"
1. PBM: outsource to another scale provider to reduce costs
2. Cash use/returns on cash. 22% D/C ratio, could take on more debt to buy back shares or a small HMO.
3. Retiree private exchanges.
4. New markets.
5. Long-term consolidation.
Base case PT: $143-152 Bull case: $194-207
WellPoint (WLP): traditional managed care. PBM sale ends in 2019. Could unlock more PBM value as early as 2017. PT $125-134 base case.
Monsanto (MON). "In the real world, we cannot solve world hunger on an organic basis." GMO seeds are best option for environment, and for feeding the world. Looks expensive at 19x this year, but it has new products that could $1.50-2.00 per share earnings. Near-monopoly position with multiple upside levers, Monsanto is suboptimally hoarding capital and value is trapped.
Be sure to check out the rest of the presentations from the 2014 Sohn Investment Conference.
Wednesday, October 2, 2013
What We're Reading ~ Analytical Links 10/2/13
Why most investors/traders fail [Reformed Broker]
Red flags flying over Boulder Brands [Herb Greenberg]
The outlook for healthcare stocks [Morningstar]
Blackstone: we're in an epic credit bubble' [CNBC]
Satellite TV providers plan for survival as growth fades [BusinessWeek]
10 stealth economic trends that rule the world today [The Atlantic]
Grounded: Brazil has stalled [Economist]
Interview with Amazon's Jeff Bezos [CNBC]
Aubrey McClendon launches new gas company [CNBC]
How Mohnish Pabrai uses checklist investing [Forbes]
Why Wall Street loves houses again [The Atlantic]
Google unveils major overhaul of its search engine [USA Today]
As J.C. Penney flounders, lack of control evident [Dealbook]
Younger generations' approach to investing [NYTimes]
Wednesday, January 23, 2013
David Einhorn's Q4 Letter: Greenlight Buys More Apple & Vodafone
David Einhorn's Greenlight Capital is out with their Q4 letter to investors via ValueWalk. Greenlight returned 7.9% in 2012 and 19.4% annualized.
The key takeaways from Greenlight's fourth quarter activity include:
- Bought more Apple (AAPL): They originally trimmed their position size in the third quarter, but as shares fell in Q4, they bought back some of their stake. Einhorn has held AAPL for quite some time as he originally purchased around $248 and this seems to be the only other time he's added to the position.
- Bought more Vodafone (VOD): This has also been a longstanding position for Einhorn under the thesis that VOD's ownership stake in Verizon Wireless is being undervalued. We've also posted Eminence Capital's long Vodafone short Verizon pair trade thesis as well.
- Covered Pitney Bowes (PBI) Short: Greenlight labeled this company a 'melting ice cube' due to facing secular challenges of declining US mail volumes. Many hedgies have been short this name and we've also posted up how hedge funds have been shorting competitor Neopost as well.
- Sold Huntington Ingalls Industries (HII), Humana (HUM), Wellpoint (WLP), bought other managed care organizations (undisclosed).
Greenlight's top five positions at the end of the year were (in alphabetical order): Apple (AAPL), Cigna (CI), General Motors (GM), gold, and Vodafone (VOD).
Embedded below is Greenlight Capital's Q4 letter to investors:
For more on this investor. be sure to also check out Einhorn's short thesis on iron ore.
Thursday, August 2, 2012
Dan Loeb's Third Point Buys Kraft, Various Healthcare Plays: July Exposure Report
Just yesterday we posted up Dan Loeb & Third Point's Q2 letter and now we have some more portfolio metrics in the form of their latest monthly exposure report. In July, Third Point Offshore was up 1.6% and is up 5.5% for the year.
Here are a few new takeaways from their latest exposure report:
- Long Kraft (KFT): The biggest news is that Third Point has disclosed a new position in Kraft Foods (KFT) and it is now their fifth largest position. The company of course will be splitting into two: a North American grocery business and an emerging snacks business.
Although Pershing Square Capital no longer owns KFT shares, you can see Ackman's presentation on Kraft from a few years ago. Third Point is most likely playing the spin-off, though. Nelson Peltz's Trian Fund has also been a large owner of KFT.
- Long Healthcare Plays: Loeb's hedge fund also appears to have started new positions in UnitedHealth Group (UNH), Humana (HUM), Wellpoint (WLP), and Cigna (CI). All of these names were 'top losers' for the fund during the month. This is worth highlighting because it is the first time these stakes have been disclosed. We recently flagged why David Einhorn likes Cigna as he recently bought the name as well.
- Third Point is net long the Americas by 70%, but net short EMEA by -4% and net short Asia by -10%.
- In equities, Loeb's firm is 35.4% net long (67.6% long and -32.2% short). This marks a decent increase from June, where they were net long 27.3%. Their largest net long sector exposure comes in technology, media & telecom (largely due to sizable Yahoo and Apple stakes).
- Their credit exposure remains somewhat unchanged from last month at 29.3% net long (37.8% long and -8.5% short). Their largest exposure there continues to be asset backed securities.
Third Point's Top 5 Positions as of the end of July:
1. Yahoo! (YHOO)
2. Gold
3. Apple (AAPL)
4. Delphi (DLPH)
5. Kraft Foods (KFT)
Third Point's just-released Q2 letter details why Dan Loeb still owns Delphi, among other position updates. We've also flagged how Loeb recently added to his Yahoo stake.
Friday, May 11, 2012
Notes From SALT Conference: Barry Rosenstein, Leon Cooperman & Joel Greenblatt's Panel on Stocks
In Las Vegas today at the SALT Conference, the talking stock panel focused on perspectives from value investing legends such as Leon Cooperman of Omega Advisors, Barry Rosenstein of JANA Partners, and Joel Greenblatt of Gotham Capital.
Barry Rosenstein of JANA Partners talked about how he's been involved in activist investing since the 1980s and thinks today's environment for it is the best he's seen. They've been an activist in McGraw-Hill (MHP). And though not an activist stake, we've posted JANA's thesis on Barnes & Noble, one of their latest investments.
He also touched on his firm's lack of exposure to financials, noting that the sector is too hard to analyze. Rosenstein will be presenting an investment idea at the NYC Value Investing Congress in October. Market Folly readers can receive a discount here with code N12MF3.
Leon Cooperman of Omega Advisors reiterated his stance that US government bonds are fundamentally overvalued. We've highlighted his case against bonds numerous times before.
In terms of stock picks, he has allocated capital to financials via AIG (AIG), E*Trade (ETFC), Capital One (COF) and Western Union (WU). On the political side of things, he deemed this upcoming election one of the most important in his lifetime.
Joel Greenblatt said he likes tech giants Microsoft (MSFT) and Hewlett Packard (HPQ). He also mentioned Wellpoint (WLP) and CVS Caremark (CVS). His book You Can Be a Stock Market Genius, despite its somewhat cheesy title, is recommended by tons of top hedge fund managers.
Whitney Tilson, the moderator of the panel, said his hedge fund T2 Partners was buying more JPMorgan Chase (JPM) TARP warrants this morning. We also recently posted T2's presentation on AIG.
For more notes from the SALT Conference, check out:
- Identifying opportunities in emerging markets with John Burbank
- Notes from panel with Kyle Bass, Dmitry Balyasny & Steven Tananbaum
- Risk panel with Phil Falcone and Eric Sprott
The above was compiled from notes sent in along with help from live tweets from: @katyawachtel & @realrobcopeland
Monday, April 16, 2012
Why Steve Romick Owns WellPoint (WLP): Stock of the Week
The stock of the week this time around is WellPoint (WLP) and the analysis below takes a look at some potential reasons as to why Steve Romick of FPA Crescent might like the company. Last week we featured: why David Einhorn owns Dell.
The following is written by Tsachy Mishal, portfolio manager of TAM Capital Management.
Hedge funds as a group have struggled performance-wise in recent years. However, there is one sector which has treated them very well: the HMO's. In 2010, at the height of uncertainty surrounding Obamacare, many hedge funds took positions in HMOs such as UnitedHealth (UNH), Cigna (CI) and WellPoint (WLP).
Since then, most of the stocks in the group are up by 50%, with some nearly doubling. Even after this large rise, many stocks in the the group are still cheap. Currently, Farallon Capital Management and Steve Romick of FPA Crescent hold positions in WellPoint.
WellPoint currently trades at $69.25 a share. They are expected to earn $7.70 in the current year and $8.50 next year. WellPoint is planning on repurchasing $2.5 billion worth of their own shares this year, which amounts to nearly 11% of the shares outstanding at the current price.
The most often cited reason for this bargain basement price is the continued uncertainty surrounding Obamacare. While Obamacare will lead to more customers, there is uncertainty regarding many of the new laws (specifically the mandate that requires them to accept customers at their quoted price, even if they are already sick).
The stock has underperformed its peers in the HMO sector recently as earnings disappointed last quarter. Wellpoint mispriced a large policy in California, which they have since terminated. As a result, Wellpoint trades at a discount to the group, even though it is the second largest HMO in a business where scale matters.
What I Like:
- The valuation of 8.15 times 2013 earnings estimates is extremely attractive assuming estimates are anywhere near accurate.
- Management has an excellent track record of returning cash to shareholders and have said they will return $2.5 billion this year via share repurchases. The share repurchase should put a floor under the stock as there will constantly be a large buyer in the market.
- There is little to no European risk in the business and economic sensitivity is minimal.
- Management recently reiterated their intent to repurchase $2.5 billion worth of shares this year, which likely means that this year is less than a disaster.
What I Don't Like:
- Low health care utilization has helped the earnings of HMOs in recent years. This trend is likely to end at some point.
- Obamacare is a wildcard as it can help or hurt earnings. While there will be more customers there will also be new regulations. This large change is a big uncertainty, which investors don't like.
- A decade ago, HMO industry profits plunged as companies fought for market share. Since then, the industry has consolidated and become more rational. However, there is still the risk that the industry is more cyclical than most believe.
There are numerous risks in WellPoint, such as Obamacare and the risk that margins for the industry contract. However, at a little over 8 times next year's earnings there is a large margin of safety in WLP's stock price. Even if estimates are off by 20% the stock is still cheap. The nice part of the business is that it is insulated from Europe and has little economic sensitivity. As a result, I am long WellPoint.
Be sure to scroll through all of our stock of the week posts for further equity analysis.
Thursday, February 23, 2012
Leon Cooperman on Bonds, Stocks, and Apple vs. Research in Motion
Leon Cooperman of hedge fund firm Omega Advisors yesterday sat down with Bloomberg Television to talk about the markets, his portfolio, and what he likes/dislikes at this juncture.
On Treasuries:
Cooperman said that, "I have great confidence the Fed is ultimately going to get their way. The Fed is trying to elevate asset prices, help consumption, help the economy and in two-three years time, we will be worrying about inflation and interest rates will be materially higher. An instrument that I have absolutely no interest in - the most widely traded instrument in the world - is US government bonds. I don’t think people understand how risky a US government bond is at 2% return."
On Equities:
After bashing government bonds, Cooperman also examined the potential of investing in high yield bonds but dismissed them as fully priced. So he turned to equities and said that, "the S&P, which is 13 ½ earnings, yields a bit over 2%, 10% below the historical multiple at a time when interest rates are below historical and you can find lots of cheap stocks out there that will yield more than bonds today that are good companies that will grow over time."
This is largely in line with what the hedgie has been preaching for sometime now. We've highlighted in the past his trademark phrase that equities are the best house in the financial asset neighborhood.
On Apple (AAPL) versus Research in Motion (RIMM):
The Omega Advisors founder thinks Apple (AAPL) is worth north of $600. On Research in Motion (RIMM), he notes that, "It's funny, it was really like a mass hysteria. We put about a half of one percent of our assets into RIM late last year on a theory that they had a revenue base that was being mispriced by the market. Which was 20% of what we had in Apple, we've owned Apple now for a long time, and we continue to own a big position, so we had five times more Apple investment than RIM."
He says they sold RIMM due to stop loss discipline, but he admits that it's still intriguing. David Einhorn's hedge fund Greenlight Capital recently bought shares of RIMM, as highlighted in this free excerpt from our newsletter.
Cooperman also mentioned that he likes gold, Qualcomm (QCOM), JPMorgan (JPM), Bank of America (BAC), Altisource Portfolio Solutions (ASPS), Unitedhealthcare (UNH), WellPoint (WLP), Boston Scientific (BSX), Echostar (SATS), and Dish Network (DISH).
Embedded below is the video from Cooperman's interview with Bloomberg TV:
For more from this hedgie, you can view Cooperman's presentation on risks to the equity outlook.
Thursday, June 23, 2011
Notes From Leaders In Investing Summit: Leon Cooperman, Larry Robbins, Bill Ackman, Howard Marks & More
The CIO/CEO Leaders in Investing Summit took place on Tuesday at The Metropolitan Club of New York and featured presentations from numerous high-profile hedge fund managers.
The summit is a peer-only event only open to those investing third party capital. We're pleased to present notes from the event concerning specific investment ideas and/or commentary on the economy:
Leon Cooperman (Omega Advisors): The legendary hedge fund manager's talk centered on equities as the best house in the financial asset neighborhood. He argued that you need to believe four issues in order to have a positive view on today's market:
1. The U.S. is not another Japan and will not suffer a lost decade.
2. The European Central Bank (ECB) will act to stabilize Europe.
3. President Obama will move to the center.
4. The Middle East's turmoil leads to democracy and oil stays below $135.
Cooperman continued to voice his concern over employment. He also pointed out that the yield curve is quite steep and that the Federal Reserve is trying to inflate the country out of debt. Cooperman says inflation is not bad for stocks (see the best investments during inflation).
He argues that stocks are cheap trading at 13.6x relative to bonds and history. The Omega Advisors founder also thinks that bonds are 'screaming' to be shorted. Other hedge fund managers have also advocated shorting bonds. Don't forget that you can also hear Cooperman's latest investment ideas at the Value Investing Congress in October (click here for a discount).
Larry Robbins (Glenview Capital): Formerly of Cooperman's Omega Advisors, Robbins founded Glenview Capital. His presentation yet again focused on Life Technologies (LIFE). The company trades at a 11x P/E and is likely to grow EPS 20% over the next few years as they were able to grow EPS throughout the slowdown and 95% of their business grows with research spending.
Robbins highlighted free cashflow is 91% of EPS and that the company will have 80% market share versus competitor Illumina (ILMN). One could postulate that he's short ILMN as a hedge but when asked about it he said that he's "only here to discuss my longs."
And speaking of longs, he said some of his top holdings are Expedia (EXPE), Flextronics (FLEX), Xerox (XRX), and BMC Software (BMC) in technology. We've detailed the in-depth investment thesis on EXPE in the latest issue of our Hedge Fund Wisdom newsletter.
In general, Glenview looks for good businesses, low valuations, excess capital, a business that can succeed regardless of economic environment, and pricing power. Currently, Robbins thinks the economy will grow slowly and with heightened volatility due to excess government intervention.
Tom Russo (Gardner Russo & Gardner): The long-only manager is still bullish on China and pitched Nestle (NSRGY) at the event. His idea is simply to buy prominent international players and hold through the ups and downs. In the past, he's talked about how Nestle can invest large amounts of money in emerging markets and see high rates of return.
He is also still holding SAB Miller (LON: SAB) despite declining EBITDA margins as the company is now making acquisitions to make up for the lack of growth. Russo did not seem to like the Foster bid.
Howard Marks (Oaktree Capital): His presentation focused on the keys to success in a low return world. Marks focused on three key questions to ask yourself as an investor today:
1. Should we prepare for prosperity? He argued no because the economic recovery is faltering.
2. Should we worry about losing money or missing opportunity? For now, he says to be mindful of losing money.
3. What holds the key? Capital and nerve? Or discernment, discipline, risk control and selectivity? Marks argues the latter right now, saying that stocks are slightly cheap, but not by much.
Marks says that your choices today are as follows: invest for the long-term, go to cash, take more risk (chase yield), or find niches. Take your pick. Marks also brought up a good point that just because stocks are flat over a ten-year period doesn't mean they are a buy because the P/E was 30x ten years ago.
Oaktree recently filed for an initial public offering and Marks' recently released his new book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor which has received praise from legendary investors Warren Buffett and Seth Klarman.
Paul Singer (Elliott Associates): This hedgie's talk focused on the shape of the next crisis. He mentioned that all major banks are quite opaque and no one can truly analyze them, meaning the next crash could be even faster because the leverage is still there. He doesn't seem to be a fan of Bernanke.
Singer points out that the lesson was "sell first, move assets first, ask questions later." Those that took more time to do so got stuck and that is dangerous. He also believes that Dodd-Frank has made the system more brittle and thinks there should be NO financial institution that is too big to fail.
Lastly, he also mentioned that monetary policy has caused commodity inflation (Howard Marks also thinks this is the case).
Bill Ackman (Pershing Square Capital): Speaking on activist investing, Ackman said that you have to work *with* management. He cited his investment in J.C. Penney (JCP) as an example as the company has a new CEO who redesigned Target (TGT) then most recently headed Apple's (AAPL) wildly successful retail operation. He also says that the company has a big advantage by owning its own real estate and not paying rent. We've covered Ackman's JCP thesis here in-depth for more.
Concerning his recent investment in Family Dollar (FDO), Ackman said that Nelson Peltz's Trian Fund is driving the effort. The company has a bid on the table and is a prime leveraged buyout candidate. The vote is in January and management has to fix the company or sell it. We've also posted Ackman's presentation on FDO.
Ackman also talked about lessons he learned from his mistakes. He said that liquidity is very valuable and lack of it is a big opportunity cost. Also, he pointed out that as you get older, you further understand the opportunity cost of time. He likes to measure whether the potential return justifies the time and risk.
Citing his past failed investment in Borders (BGPIQ), Ackman said he underestimated the risk of technological change. He would rather invest in a good business than just good management. He said the limitation of his approach is that although the stocks he invests in are liquid, his concentrated stakes are not (Ackman also mentioned 27% of his fund was redeemed during the crisis).
Ron Gutfleish (Elm Ridge Capital): Gutfleish likes the defense sector and in particular, Lockheed Martin (LMT). He argues the company doesn't make bad acquisitions, pays a good dividend and does smart buybacks. While he admits to being "usually too early," the hedgie thinks that these stocks are very cheap no matter what you think about the defense sector.
The bear case there is very obvious, he notes, pointing to a budget under pressure. However, he argues that these companies generate huge cash flow during down cycles and deploy it in shareholder friendly ways.
Joel Greenblatt (Gotham Capital): Greenblatt's presentation focused on the 'big secret for value investors.' He was, of course, referring to his new value-weighted indexing method which is detailed in his new book, The Big Secret for the Small Investor: A New Route to Long-Term Investment Success.
He argues that indexes have the flaw of market cap weighting. Evenly weighted, the SPX outperforms by 3% per year over the last 20 years. A value weighted index of 800 stocks beats the SPX by 7% a year.
Right now, Greenblatt says his statistics point to stocks being at about average valuations. Some of the stocks on his list right now include: Gamestop (GME), Wellpoint (WLP), and Intel (INTC). He says that these companies are trading at bargain prices either due to uncertainty or because they are troubled.
That sums up notes from the summit. Keep in mind that many of these hedge fund managers will be presenting investment ideas at the upcoming Value Investing Congress in October and Market Folly readers can receive a discount to the event by clicking here.
Wednesday, May 25, 2011
Ira Sohn Conference Notes Part 2: Ackman, Einhorn, Eisman, Icahn, Greenblatt
This is part 2 of our ongoing coverage of presentations given by top hedge fund managers at the Ira Sohn Conference today. Be sure to check out part 1 of our notes from Ira Sohn which includes presentations from Dinakar Singh, Jim Chanos, Phil Falcone and more.
Part 2:
Steve Eisman / FrontPoint Partners: Eisman was profiled in Michael Lewis' great book, The Big Short as one of the big winners in the subprime trade. Last year at Ira Sohn, he said to short for-profit education stocks and that trade paid off as many stocks were down anywhere from 25% to 72% over the past year.
This time around, Eisman focused on US financials, asking "are financials dead forever?" He notes that credit quality is improved but interest margins will most likely continue to contract.
Eisman likes property and casualty insurers, citing the potential for commercial policy pricing to improve. He noted that his year has been particularly hard hit with natural disasters, leading to large insurance losses. He thinks P&C insurers are a 'buy' even if there's another big disaster.
He says the least risky way to play this is via insurance brokers like Marsh & McLennan (MMC), Willis Group (WSH), and Aon (AON). You can read an in-depth analysis of AON in the free sample of our Hedge Fund Wisdom newsletter (direct .pdf download link).
For riskier plays, Eisman points to pure reinsurers based in Bermuda and pulled up a list of them, the most well-known of which is probably Ace (ACE).
Bill Ackman / Pershing Square Capital: Ackman said to buy Family Dollar (FDO). He likes the dollar-store chain because it is like Walmart, but there's room to grow. He also notes the company's solid return on capital as they can build plenty of new stores. Many of Ackman's plays are retail or real estate focused and this one is no different.
FDO actually received a bid to go private from Nelson Peltz's Trian Fund, who offered between $55 to $60 per share in February. They are one of the largest shareholders, owning almost 8% of FDO's shares. Ackman believes that FDO is an attractive target for a leveraged buyout.
Ackman notes that Family Dollar has fallen behind competitor Dollar General (DG) ever since KKR bought DG and now FDO has to improve. The Pershing Square manager thinks shares will trade as much as 70% higher (FDO currently trades around $55 and Ackman thinks it's worth up to $92 including dividends). He also mentioned that his hedge fund was even buying shares today.
We also covered that Ackman started an activist position in Alexander & Baldwin (ALEX).
Joel Greenblatt / Gotham Capital: The value investor talked about the advantage of having a long-term investment horizon. He emphasizes investments that fall under the 'time arbitrage' classification. Market Folly readers will recall that Blue Ridge Capital's founder and hedge fund manager John Griffin also uses this approach. He classifies investments as either time arbitrage or catalyst driven.
Greenblatt's picks included a myriad of names, including: WellPoint (WLP), GameStop (GME), Intel (INTC), Walgreens (WAG), Nordstrom (JWN), Bed Bath & Beyond (BBBY), and Humana (HUM).
He also has a new book out entitled, The Big Secret for the Small Investor: A New Route to Long-Term Investment Success. You can also check out his recommended reading list here.
David Einhorn / Greenlight Capital: Einhorn's presentation laid out the bull case for life insurer Delta Lloyd (AMS: DL), traded in the Netherlands. This is one of his hedge fund's largest positions.
His second pick was Microsoft (MSFT). The tech giant has attracted lots of value investors as of late and you can view fellow hedge fund T2 Partners' presentation on MSFT here. Einhorn says the company still has a shot at the smartphone market with its partnership with Nokia (NOK). He also notes that it is trading at a discount as the market isn't giving them credit for their solid position in cloud computing.
Einhorn also said that CEO Steve Ballmer doesn't care what Wall Street thinks and that could possibly be a good thing. However, he conceded that Ballmer is "stuck in the past" and said that Ballmer's "continued presence is the biggest overhang on Microsoft's stock." It's very clear Einhorn wants Ballmer fired.
We've also detailed Greenlight Capital's recent letter to investors for insight into their new positions in Yahoo! (YHOO) and Best Buy (BBY).
Carl Icahn / Icahn Partners: The legendary rabblerouser began his presentation by saying he's made a fortune by studying natural stupidity. Icahn said that "activism" in the old-school sense of the word is dead; there aren't anymore true corporate raiders anymore. He says that there's tons of money to be made by shaking things up at a company.
He went on to talk about why he returned outside investor capital in his funds. He simply didn't want to be responsible for the losses of others like he was during the 2008 crisis. Icahn fears further problems will arise in the markets in a year or two. His pitch at the conference? His holding company: Icahn Enterprises (IEP).
Mark Hart III / Corriente Advisors: If you're unfamiliar with Hart, then all you need to know is that he created subprime mortgage and sovereign debt funds well before the crises happened, profiting handsomely from the events that followed.
In his speech, Hart said to short China and this isn't the first time he's made this case. He argues that it is a credit fueled bubble and there are many misconceptions out there. It seems his conviction is high here as he says that China's bust will be much larger than the Asian crisis in the 90's.
Hart argues that inflation will end China's credit growth. This isn't the first time we've seen this argument. Hedge fund Kleinheinz Capital has in the past said that inflation is the biggest threat to emerging markets. Coincidentally, both Kleinheinz and Corriente operate out of Fort Worth, TX. Lastly, Hart mentioned he was buying puts on the renminbi.
Jeffrey Gundlach / DoubleLine: He used an Andy Warhol car crash painting as an illustration for the housing market. He said that Bank of America $BAC is a proxy for the ABX and says it's going lower. Gundlach likes natural gas.
Interestingly enough, Gundlach said that gold is too heavy to carry around to use as a form of currency to pay for things. Instead, he said to use gems to protect against a crash and uncertainty because they are more portable, noting that you can carry a ruby in your shoe. Gundlach prefers holding cash or gems instead of gold or silver.
As an aside, it's worth noting that diamond prices have been heading higher in recent months. They are not a publicly traded commodity and high demand from India and China seems to be driving prices there.
Marc Faber / Gloom Boom & Doom Report: Faber is very clearly not a fan of Ben Bernanke. He says that the Federal Reserve Chairman is a student of history regarding the Depression, but that Bernanke unfortunately doesn't know what caused it. Faber notes that as the Fed prints more money, cash and bonds obviously aren't good investments. He also joked that if everyone at Ira Sohn complained, Bernanke would come in and drop a trillion dollars right there.
Faber said not to own US government debt, even if the deflationists end up being right. He is also an advocate of owning gold but not storing it in one place. Faber says you need to store gold all over the world in Australia, Switzerland, etc. He also disputed Gundlach's notion to own gems over gold and said people will always value gold, even if you're in a jungle or desert because everyone knows what it is.
Steve Feinberg / Cerberus: He pitched residential mortgage backed securities (RMBS) as a compelling opportunity and labeled them 'cheap,' given the high amount of underwater loans and depressed home prices.
Peter May / Trian Fund Management: Peter May of Nelson Peltz's Trian Fund pitched upscale jeweler Tiffany & Co (TIF), citing "enormous price appreciation" ahead. Catalysts for TIF include new store openings, vertical integration, new watches, and increased analyst coverage and he said shares could see $100 (they currently trade around $70.)
If you missed it, be sure to also check out part 1 of our notes from Ira Sohn featuring investment ideas from Jim Chanos, Phil Falcone, Dinakar Singh and more.
Tuesday, June 15, 2010
Dan Loeb Sells Financials: Third Point's Investor Letter (Q1 2010)
Dan Loeb's hedge fund firm is now fifteen years old. They have a lot to celebrate too considering Third Point has grown assets under management from $3.3 million to now billions. And when we checked in on Loeb's firm back in May, we saw his Offshore Fund had annualized returns of 18.6% versus 5.2% for the S&P 500. With cumulative performance of 892%, Loeb has certainly found success. To get on track toward emulating such success we'd refer you to Dan Loeb's recommended reading list. So, what has he been up to lately? We'll dive into Third Point's first quarter investor letter below.
While Loeb notes that his firm started betting on a recovery in April 2009, he fixates on the fact that investor confidence is still not what it should be. He attributes this lack of pizazz to a continually shifting regulatory environment where the rules are rapidly and repeatedly revised. In his typically eloquent fashion, Loeb summons his famously penned CEO-bashing days of old. This time though, he has a different target. He writes, "The Administration appears unable, or unwilling, to let free-market capitalism resume. Indeed, it is neither health care nor financial reform which has stressed markets most in 2010, but rather the continued politicizing of the regulatory process and the abandonment of free market capitalist principles that have undermined investor confidence".
In fact, Loeb's confidence in the system has been shaken to the point where he has sold out of practically all of Third Point's positions in financial companies. Third Point has exited their Citigroup (C) and Bank of America (BAC) stakes. Additionally, Loeb sold mostly out of his Barclays (BCS) position and only holds a small residual position in a regional bank (to the tune of less than 1%). Loeb is now the perfect example of his own point on investor confidence. Most investors haven't been confident in the markets. Loeb, on the other hand, hasn't been confident in the administration and its actions. However, his lack of confidence in regulators has in turn caused lack of confidence in the ability to invest in financial companies.
In what will surely be labeled as a strange and potentially questionable maneuver, Loeb notes that he talked about his positions in BAC and C back on January 20th at Third Point's annual investor presentation. However, in his first quarter letter he reveals that he quickly sold out of those positions only days later. While he provides rationale for his abrupt exit, it certainly wreaks of oddity and might rub some investors the wrong way that he would essentially be 'pitching' them on the latest investments in financials, only to sell out of them in the days following the event. Loeb labels political action as part of his reason for exiting and so maybe more than anything he is using this as an example to showcase how much of an effect regulators are having on investor confidence.
It's truly intriguing to see the dynamic at play with financial stocks. While Third Point exited Citigroup in the first quarter, Bill Ackman's hedge fund Pershing Square just started a position in C. As always, this is the beauty of a market and the dichotomy of opinion. Loeb also reveals that Third Point has exited their position in Wellpoint (WLP), a health care company. He says his firm is no longer able to predict how legislation or regulation will affect the company and its industry and such unknowns present too much of a risk.
On the short side of the portfolio, Loeb reveals that they have increased shorts in the for-profit education sector. This theme is now running rampant through hedge fund land as Steve Eisman presented the short case for these companies at the recent Ira Sohn Investment Conference. This stock battleground becomes even more intriguing when you consider that some of the biggest hedge funds have also previously had long positions in these companies. We'll have to see if they have since caved in with their positions or whether they are standing strong. In the past though, we have noted certain hedge funds exiting long positions in the for-profit education space.
Loeb also mentions that Third Point has reduced gross and net exposure. We of course have already taken a recent look at Loeb's portfolio positioning with Third Point's latest exposure levels. In terms of other equity investments, Third Point still fancies post-bankrutpcy equities as they are still very cheap. In terms of new portfolio activity, we've highlighted how Third Point disclosed a stake in Xerium Technologies as well as a new position in Roomstore. And for more on Loeb's holdings from the first quarter, we've detailed Third Point's equity portfolio.
Embedded below is Third Point's first quarter letter to investors:
You can download a .pdf copy here.
For now, it certainly seems as though Loeb's confidence in regulators, financials, and the financial system is certainly shaken. We'll have to see what it means for his portfolio in the coming quarters, but it sounds as though he's still finding ample opportunities in his event-driven value niche. For more resources on Third Point, be sure to check out Dan Loeb's recommended reading list, as well as Third Point's latest exposure levels.
Monday, February 22, 2010
Dan Loeb's Third Point Likes Citigroup & Transdigm Group: 13F Filing
(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)
Next up is Dan Loeb's Third Point LLC. Third Point manages a series of hedge funds and focus on event driven and value oriented investments. Loeb started his hedge fund with $3.3 million in 1995 and today manages billions. To learn how to invest like a prominent hedge fund manager, check out Dan Loeb's recommended reading list. Additionally, we recommend watching a video of Dan Loeb giving some general investing advice.
Since inception, they've seen greater than 15% annual returns. For 2009, Third Point's Offshore fund was up 38.6% and their Ultra fund up 44.2% as noted in our list of hedge fund performance numbers. The positions listed below were their long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.
Brand New Positions
Citigroup (C)
CIT Group (CIT) ~ most likely a result of debt to equity conversion
Affiliated Comp (ACS)
Mead Johnson Nutrition (MJN)
Xerox (XRX)
Energy Partners (EPL) ~ likely a result of senior notes converting into equity
DirecTV (DTV) ~ a result of the Liberty Media merger
Yahoo (YHOO)
Liberty Media (LSTZA) ~ also a result of the Liberty Media merger
Advanced Micro Devices (AMD)
Pain Therapeutics (PTIE)
Life Partners (LPHI)
TCW Strategic (TSI)
Increased Positions
Coinstar (CSTR): Increased by 183.3%
Transdigm (TDG): Increased by 80%
Wellpoint (WLP): Increased by 37.5%
Capitalsource (CSE): Increased by 14.6%
Reduced Positions
American Water Works (AWK): Reduced by 75%
Greenlight Capital Re (GLRE): Reduced by 54%
Hewlett Packard (HPQ): Reduced by 50%
Popular (BPOP): Reduced by 43.7%
Removed Positions (Sold out completely):
Wyeth (inactive) ~ merger transaction complete
CF Industries (CF)
Liberty Acquisition (LIA)
Bank of America (BAC)
Molson Coors (TAP)
Pfizer (PFE)
Allergan (AGN)
Schering Plough (inactive) ~ merger transaction complete
Apple (AAPL)
Trian Acquisition (inactive)
Liberty Media (LSTZA)
Carefusion (CFN)
Anadrako Petroleum (APC)
First American (FAF)
Lions Gate (LGF)
Synaptics (SYNA)
Oracle (ORCL)
Resolute Energy (REN)
Alkermes (ALKS)
Blockbuster (BBI)
Stream Global (OOO)
Blockbuster b shares (BBI.B)
Loral Space (LORL)
Top 15 Holdings by percentage of assets reported on 13F filing
- Transdigm Group (TDG): 9.1%
- Citigroup (C): 8.9%
- PHH (PHH): 8.4%
- Healthnet (HNT): 7.5%
- Wellpoint (WLP): 6.9%
- CIT Group (CIT): 5.2%
- Affiliated Comp (ACS): 5.1%
- Mead Johnson Nutrition (MJN): 4.7%
- Cablevision (CVC): 4.1%
- Xerox (XRX): 3.6%
- Nabi Biopharmaceuticals (NABI): 3.6%
- Energy Partners (EPL): 3%
- Coinstar (CSTR): 2.5%
- DirecTV (DTV): 2.5%
- Depomed (DEPO): 2.4%
Third Point initiated quite a few brand new positions in the fourth quarter, but keep in mind that some of them are a result of coporate transactions. After all, Third Point focuses on event-driven strategies and often holds positions in numerous asset classes. Their CIT stake is most likely a result of a debt to equity conversion, while their positions in DTV and LSTZA are from the recent Liberty Media merger. Additionally, we detailed Third Point's new EPL position that was most likely a result of senior notes converting into equity.
Their Citigroup (C) stake is brand new and they brought it all the way up to their 2nd largest US equity long. Additionally, their brand new position in baby formula producer Mead Johnson (MJN) intrigued us because we're seeing more and more prominent hedge funds add MJN.
On the selling side, they dumped CF (previously their 3rd largest US equity holding), Bank of America which was previously their fifth largest, and Popular which was their sixth largest. Interestingly they only held their Popular (BPOP) stake for one quarter.
It was also interesting to see Loeb sell over half of his Greenlight Capital Re (GLRE) stake. This has always been a very small position for them, but they've held it for quite a long time so it was curious to see them all of a sudden adjust it. GLRE of course is the casualty and property reinsurer chaired by David Einhorn of hedge fund Greenlight Capital.
We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, and Lee Ainslie's Maverick Capital. Check back daily for our new updates.
Monday, January 11, 2010
Fairholme's Bruce Berkowitz Likes Healthcare Plays
We haven't covered Bruce Berkowitz on Market Folly before since we primarily track hedge funds here. However, there's no reason we shouldn't track him seeing how he is smart, an excellent stockpicker, and runs a concentrated portfolio. For those of you unfamiliar, Berkowitz runs the Fairholme mutual fund (FAIRX).
A $10,000 investment in his fund back in 1999 would today be worth almost $33,000. He founded Fairholme back in 1997 after a career as a managing director for Smith Barney. His Fairholme portfolio typically holds only 15-25 stocks, 20% cash, and employs a value approach. Berkowitz likes to see solid management teams coupled with undervalued companies. His concentrated portfolio allows him to 'bet big' on the stocks he sniffs out.
With this in mind, let's check out his latest focus: healthcare reform. In a recent publication from Money magazine, Berkowitz said he thinks the market is overestimating the impact that Obama's plans will have on healthcare companies. In fact, Berkowitz likes healthcare plays so much that he's put around 25% of Fairholme's portfolio in these sorts of companies. He doesn't think that healthcare reform will hurt profits for drug and hospital companies as much as others anticipate.
So, what companies does Berkowitz like? Here are his picks:
Humana (HUM) and WellPoint (WLP)
With both companies possessing P/E ratios of less than 10, they certainly fit Fairholme's undervalued focus. Berkowitz says that, "these insurers are both generating a significant amount of cash, and that's not reflected in their low stock prices. We don't believe the government will take over providing health insurance, despite fears otherwise."
Pfizer (PFE) and Forest Laboratories (FRX)
These companies also sport low P/E ratios and Berkowitz has taken notice. He says that, "a decade ago people overpaid for drug stocks because they were overly optimistic about earnings potential. Today that pendulum has swung so far the other way that some stocks are priced below their true value." Shares of Pfizer have been marching higher in stair-stepping fashion and trade at much lower multiples than they have historically.
We make special note of PFE because we've noticed many hedge funds buying shares over the past few quarters. After all, Pfizer was the second most popular stock held by hedge funds. Berkowitz is certainly not alone in his fondness for this name. John Griffin's hedge fund Blue Ridge Capital had Pfizer as their third largest US equity holding when last we checked. Whitney Tilson's hedge fund T2 Partners is long PFE. Also, David Einhorn's Greenlight Capital also has a sizable stake in Pfizer and has been bullish on their prospects. While shares have been marching higher, we'll have to see if they continue to do so given the large 'smart money' presence.
So, some interesting picks from Fairholme's Berkowitz. He certainly feels others have overestimated the impact of healthcare reform on these companies. After all, he has almost a quarter of his portfolio in this sector. Lastly, in other interesting news out of Fairholme, we saw earlier that Berkowitz would be opening a bond fund after enjoying success with his equity fund. We'll continue to track his portfolio going forward.
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