Keith Meister's Thesis on YUM Brands China Spin-Off; Talks Pandora & Williams

Keith Meister of activist firm Corvex Capital was just interviewed by CNBC where he talked about YUM Brands (YUM), Pandora (P), shareholder activism and more.  On the market in general, he said he's bullish on his individual positions but not necessarily the market in general.  He notes, "I'm not a buyer of the market here, per se.  My guess is we're more near a top than a bottom."

Meister on YUM Brands Spin-Off

Corvex is the largest shareholder of YUM and will spin-off its China business to shareholders on November 1st and he believes it's "1 plus 1 equals more than 2."

He notes that the remaining HoldCo will be a 98% franchised, asset light business in the quick service food industry.

Meister says the China co is a different story as 7,500 restaurants (KFC, Pizza Hut) in China gives them a huge advantage as they were first to move and have become the dominant player there in the QSR space and they can now go into tier 2 and tier 3 cities.  He acknowledges that it will be a volatile ride, but says it can be an 'up and to the right' chart over time.

He argues it should trade at 10-12x EBITDA after spin-off, but acknowledged it could start trading around 8x which would basically be trough earnings.  "The market's not gonna make it easy to own YUM China, but that's where I think the best return will be."

He feels the remaining HoldCo will trade more like an annuity, with smoother returns. 

On shareholder activism, Meister says that these types of investors are simply trying to buy good businesses, help make positive changes, and acting like an owner in the public markets.


Meister on Pandora (P)

Meister still owns Pandora (P).  When asked if they're going to sell themselves, he said he didn't know.  He compared the company to competitor Spotify and notes the gap in valuation as one is private and one is public.   He argues that music is so core to many tech players these days (Apple, Amazon, etc) and he says "so it's a hugely valuable piece of property for someone who wants to win."

He concedes the streaming business is a commodity business, but argues that Pandora isn't due to the built up userbase as an asset.


Meister on Williams (WMB)

The Corvex founder also talked about Williams (WMB) and has left the board and commended the company on the work done.  He personally feels that the company has "undermaximized the opportunity set" over the past 5 years.

He thinks it could probably be worth more as part of another entity.  He thinks consolidation is happening and you don't want to be left out.  "It's hard to build new pipeline, so it makes existing pipeline more valuable." 

We'll post up the video of the interview once it's released.  Be sure to also check out CNBC's interview with David Tepper from yesterday, as well as their conversation with Carl Icahn.

Keith Meister & Eric Mandelblatt Step Down From Williams Board

Keith Meister's activist hedge fund firm Corvex Management has filed an amended 13D regarding its stake in Williams Companies (WMB) jointly along with Soroban Capital's Eric Mandelblatt.

Per the filing, the two gentlemen have stepped down from Williams' board of directors since the company was unwilling to replace Alan Armstrong as CEO.

You can view Meister's resignation letter here and Mandelblatt's here.

The 13D notes that their respective stakes in the company remain unchanged.

Per Google Finance, Williams is "an energy infrastructure company focused on connecting North America's hydrocarbon resource plays to markets for natural gas, natural gas liquids and olefins. The Company's segments include Williams Partners, Williams NGL & Petchem Services, and Other. Its Williams Partners segment consists of its consolidated partnership in Williams Partners L.P., including gas pipeline, which consists of interstate natural gas pipelines and pipeline joint project investments, and midstream business, which provides natural gas gathering, treating, processing and compression services. Its Canadian midstream operations include an oilsands off gas processing plant, NGL/olefin fractionation facility and the Boreal Pipeline. The Williams NGL & Petchem Services segment consists of Texas Belle pipeline, domestic olefins pipeline assets and Canadian growth projects under development. Its Other segment includes corporate operations and Canadian construction services company."

What We're Reading ~ 4/20/16

The Great Minds of Investing [William Green]

On simplicity versus complexity in investing [Reformed Broker]

Capital allocation - defining what is good and what is bad [Value and Opportunity]

Why we think we're better investors than we are [NYTimes]

Billing by millionths of pennies, cloud computing takes in billions [NYTimes]

Inside Amazon's cloud computing infrastructure [DataCenter Frontier]

Inside the nondescript building where trillions trade each day [Bloomberg]

The Energy Transfer - Williams poker game [SL-Advisors]

Kinder Morgan: asymmetric upside potential [Value and Opportunity]

India's thirst for oil is overtaking China's [Bloomberg]

HDR is TV's next big format war [CNET]

Profile on Google's Sundar Pichai [Buzzfeed]

How Jeff Bezos became a power beyond Amazon [Fortune]

Inside the house that Jack Ma built [Bloomberg]

The billionaire behind Walgreens' quest for global dominance [Fortune]

Media websites battle faltering ad revenue [NYTimes]

Ugg: the look that refused to die [The Guardian]

Critical things successful people do every day [Linked In]

Corvex Management & Soroban Capital Add To Williams Position

Keith Meister's hedge fund firm Corvex Management filed an amended 13D in conjunction with Eric Mandelblatt's Soroban Capital regarding their joint position in Williams Companies (WMB). 

Per the filing, the hedge funds now own 8.39% of the company with over 62.68 million shares (though if you add in the options, they'd own 9.11% with around 68 million shares).

This would indicate that the hedge funds have increased their exposure by around 21 million more shares since the end of the third quarter.  The filing was made due to activity on November 18th.

Per Google Finance, Williams is "an energy infrastructure company focused on connecting North America’s hydrocarbon resource plays to markets for natural gas, natural gas liquids (NGLs), and olefins. The Company’s operations span from the deepwater Gulf of Mexico to the Canadian oil sands. It operates in three segments: Williams Partners, Midstream Canada & Olefins and Other."

For more on Corvex in particular, we recently posted up Meister's presentation on Crown Castle International.

Corvex & Soroban Expect to Increase Williams Companies Stake (13D Filing)

Keith Meister's activist hedge fund firm Corvex Management and Eric Mandelblatt's Soroban Capital have jointly filed an amended 13D with the SEC regarding their position in Williams Companies (WMB). 


Corvex/Soroban To Increase Williams Companies Stake

The filing details that the Hart Scott Rodino waiting period has expired and as such, "Corvex intend to promptly exercise their deeply in-the-money physically settled call options and Corvex and Soroban also expect to acquire additional shares, further increasing their beneficial ownership stake."

Per the 13D, the hedge funds have disclosed a 7.14% ownership stake in WMB with exposure to over 48.8 million shares.

That figure doesn't include their cash-settled swaps and options regarding an additional 19.2 million shares, so their aggregate exposure to the name can rise as high as 9.96% (with 68 million shares). And now we get word that they're likely to buy more.


Seeking Board Seats As Well

The filing indicates that the hedge funds want Mandelblatt and Meister to join the company's board, but they haven't been able to come to an agreement with the company.

We've previously posted about their Williams Companies stake earlier this year.

Per Google Finance, Williams Companies is "an energy infrastructure company focused on connecting North America’s hydrocarbon resource plays to markets for natural gas, natural gas liquids (NGLs), and olefins. Its operations span from the deepwater Gulf of Mexico to the Canadian oil sands. It operates in three segments: Williams Partners, Midstream Canada & Olefins and Other. Its interstate gas pipeline and domestic midstream interests are held through its investment in Williams Partners L.P. (WPZ). It owns the general-partner interest and a 70% limited-partner interest in WPZ. Williams also owns a Canadian midstream and domestic olefins production business, which processes oil sands off-gas and produces olefins for petrochemical feedstocks." 

For more additional recent portfolio activity from Corvex, click here.

Corvex & Soroban Add To Williams Companies Position

Keith Meister's activist hedge fund Corvex Management and Eric Mandelblatt's Soroban Capital have filed an amended 13D with the SEC regarding their position in Williams Companies (WMB).  Per the filing, the hedge funds have disclosed they now own 6.74% of WMB with over 46 million shares.

The filing indicates their latest activity was on January 9th, 2014 and this stake is up from the previous 5% of the company they owned.  We initially highlighted when these hedge funds went activist on Williams last month.

Keep in mind, however, that their position disclosure is not inclusive of cash-settled swaps and options which reference an additional 21.3 million shares.  If you add in this exposure, they would own 9.86% of the company.

Per Google Finance, Williams Companies is "an energy infrastructure company focused on connecting North America’s hydrocarbon resource plays to markets for natural gas, natural gas liquids (NGLs), and olefins. Its operations span from the deepwater Gulf of Mexico to the Canadian oil sands. It operates in three segments: Williams Partners, Midstream Canada & Olefins and Other. Its interstate gas pipeline and domestic midstream interests are held through its investment in Williams Partners L.P. (WPZ). It owns the general-partner interest and a 70% limited-partner interest in WPZ. Williams also owns a Canadian midstream and domestic olefins production business, which processes oil sands off-gas and produces olefins for petrochemical feedstocks."

Corvex Management & Soroban Capital Go Activist on Williams Companies (WMB)

Keith Meister's activist hedge fund Corvex Management and Eric Mandelblatt's Soroban Capital Partners have entered into an agreement and jointly filed a 13D on shares of Williams Companies (WMB). 

Per the filing, they've disclosed a 5.28% stake in WMB with Corvex owning 13.6 million shares and another 5 million shares underlying call options. Soroban has revealed ownership of 17.4 million shares.

This excludes cash-settled swaps and options which represent an additional 24,213,599 shares.  If these were aggregated together, Corvex and Soroban would have an aggregate economic interest of 8.82% of the company with over 60.3 million shares.

It looks like Corvex was buying call options and selling puts in Late October and throughout November while Soroban was buying shares in late October.


Activist Investment Thesis

The hedge funds have met with management and the Board to discuss the company's operations, finances, strategy and governance.  The filing indicates,

"(Williams) has a strong competitive position in an attractive industry with tremendous growth opportunities but recent operational and financial missteps have prevented the Issuer’s Shares from reflecting full value. The Reporting Persons intend to discuss the following with one or more of the persons referenced above (among other topics): enhancing the structure and value of the Issuer’s investments and assets; evaluating and financing of capital projects; optimizing the Issuer’s capital structure and dividend policy; improving the Issuer’s operational and financial execution; and the potential for participating in strategic combinations given the rapid pace of consolidation in the midstream energy industry."

Meister and Mandelblatt are also looking to join the Board.


See other recent activity from Corvex here.

Scout Capital: Long Williams (WMB) & Sensata Technologies (ST) ~ Value Investing Congress Presentation

At day two of the Value Investing Congress, Adam Weiss & James Crichton of hedge fund Scout Capital gave the case for a long of Williams (WMB) and Sensata Technologies (ST) in a presentation entitled "Two Investment Opportunities."

Be sure to check out all our notes from the Value Investing Congress.


Scout Capital

Adam Weiss: long Williams Co (WMB)

Three parts: pipelines, midstream producer of LNG, E&P. Feb new CEO breaking up the company. Stock $24, Base case $37, based on infrastructure business being revalued on break up, reserves is $9 per share for E&P, “hidden asset” worth $3/share. Upside case is total $47-50.

*Note: In the past we saw large hedge fund buying in WMB and analyzed it in a past issue of our Hedge Fund Wisdom newsletter.

Business quality: “good, not great”

Business model: inevitable product/service, benefits of scale, favorable competitive environment as pipelines take time to build, WMB is low cost provider.

Sustainable growth: 7-10% EBITDA CAGR over 5 years. Well-located pipelines, in most cases, coal to gas switching is required by law and Transco (WMB) has the only pipelines there.

Management: New CEO, break-up of company within months of taking over, strong performance record in the past – he ran the WMB midstream business prior to this and it had the highest growth of any division.

Street misunderstanding: spin/break-up of a conglomerate- different types of investors in the stock- E&P and infrastructure are at odds with each other. Sell-side and buy-side coverage issues. New CEO, new culture. Hidden asset- the off-gas processor in the Canadian gas sands. By breaking up the company, shifts focus from EBITDA to multiples to dividend power, yield and NAV.

Valuation: Sum of the parts: Base case $37, bull case $47-50

1. Infrastructure assets. Dividend of $1.14-1.37, 1.2x coverage, gets $25 stock based on 4.5% yield, similar to KMI or OKE comps. Upside case 4% yield is $30.

2. E&P business: $9.00 floor share, based on NAV comps- CHK, et al. $1.24 per proven mcf, 25% below peers.

3. Hidden asset. Canadian Midstream business, oil sands gas processor. Based on 4.5x EBITDA get $3.00 base case, upside based on dividends, 0.40 div, 4.5-5.0% yield, get $6-8 per share in bull case.

4. Balance sheet value/ cap structure optimization. Either M&A or buyback, get $2-3 per share.


Risks: MLP valuation risk, NGL stability (20% of EBITDA from commodity-sensitive margins), regulatory changes - taxation of MLPs are a headline risk.

Path to realization? Spin of business Q1-2012 is catalyst. Dividend raise. Discovery of hidden asset by Street. Excess capital usage.



James Crichton: long Sensata Technologies (ST)

Airbags, jet circuit breakers, HVAC systems. High value add solutions. Low cost, high value nature of products, with high switching costs. The current issue of our Hedge Fund Wisdom newsletter also analyzes ST.

How Scout determines their Circle of Competence: Know the right people? Not quarter-to-quarter news flow, deep industry knowledge. Product? Do we understand the drivers of demand? Mental models: are there any useful predictable models in place? His example, Sensata engineers work at customers’ facilities, so familiarity makes it easy for customers to buy from them. Impact of un-analyzables. Identify risks and things that you can’t know for sure.

Business Quality. Powerful moat, inevitable product- make machines safer and more efficient. High value, low cost value proposition- typical sensor costs $10, in a multi-thousand dollar engine. High switching costs once designed into products. In flat GDP, grows revenue from 4% to as high as 20% in a better economy. FCF grows 12-30%.

Management: grew revenue 6.5% CAGR despite auto industry contraction. Management owns 2.2%, $100M of stock, CEO owns $45M.

Misunderstanding by Street: levered equity stub in a relatively new public company without peers. Change of incentives makes levered equity stubs work. (This was a Bain LBO from TXN in 2006, and then IPO’d). Management is paid more by stock than cash. Scout is higher than Street on estimates. “Sponsor” still owns 51% of stock, is selling, and may become more liquid. (Can be some overhang in these situations though).

Risks: need auto sales to hold up, improve for stock to work. Scout is modeling no growth, but also no further drop. Also, bull case relies on further accretive acquisitions. Valuation multiple may not expand.


Q&A Session: Did KMI/EP deal change their numbers for WMB? Gets you 11-12x EBITDA for pipeline asset, does indeed add to bull case price target.


For more from this hedge fund, head to some of Scout's other new positions.

Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.

Dan Loeb's Third Point Reduces Equity Exposure

Dan Loeb's Third Point Offshore Fund finished May -0.4% and year-to-date is up 9.7%. Managing around $4 billion, the hedge fund is closed to new investors and has seen 18.8% annualized returns.


Equity Exposure

The month of May was a volatile one for the markets in general and hedge funds were no exception. Third Point ratcheted down exposure to equities as they were 42.6% net long at the end of the month (60.3% long and -17.7% short). The month prior, the hedge fund was 46.8% net long equities, marking a 4.2% decrease in exposure from April to May.

Third Point's largest exposure this time around continued to be the consumer sector at 9.5% net long and basic materials at 8.2% net long.

Credit Exposure

In credit, Third Point was 34.4% long, -7.7% short, leaving them 26.7% net long. This is down from 29.4% net long the month prior. Their largest exposure in this segment continues to be asset backed securities.

Top Positions

Third Point's top holdings at the end of May were:

1. Gold
2. Delphi
3. El Paso (EP)
4. Technicolor (Multiple Securities owned)
5. CVR Energy (CVI)

Earlier today we posted up that David Tepper's Appaloosa Management recently bought more CVR Energy. Also, we highlighted how Delphi will be going public and there are numerous hedge funds involved in that name as well.

In the month of May, Third Point's top winners included: Delphi, El Paso, Short A, Short B, and Aveta.

The hedge fund's top losing positions for the month included: NXP Semiconductor (NXPI), NewPage, Williams Companies (WMB), Big Lots (BIG), and gold.

For rationale behind some of their investments, check out Third Point's investor letter.

Jeff Saut's Favorite Investment Ideas

Market strategist Jeff Saut's latest commentary is out and he focuses on some of his favorite investment ideas. They are:

Wiliams Companies (WMB): He writes that, "Our bullish thesis on Williams is supported by three main points: (1) we believe the company's E&P assets will garner a higher valuation in the market place as a stand-alone entity when the company splits itself into two parts; (2) we believe the market is undervaluing Williams' ownership of the Williams Partner GP, and (3) we expect strong growth from the Canadian midstream assets."

Market Folly readers will recall that Dan Loeb's Third Point outlined this exact WMB thesis as well, as the stock seems to be a hedge-fund-favorite.


Clayton Williams (CWEI): Saut notes, "What does set Clayton Williams apart from the rest of the group is its highly oil-weighted production profile (74%), growing position in high-return oil plays (namely the Permian and Delaware Basin), and cheap valuation. Raymond James Analyst John Freeman last week reiterated his Outperform rating on Clayton Williams and stated that he viewed any pressure in the stock as a buying opportunity."

In his commentary, Saut also explains the rationale behind bullishness on shares of Iberiabank (IBKC), and Equinix (EQIX).

He also points out some of the latest hedge fund moves from 13F filings. While he notes that HCA Holdings (HCA) was one of the largest new buys in the past quarter, he fails to mention that it was because the company had its initial public offering. To see what hedge funds have been buying, we of course point you the new 91-page issue of our Hedge Fund Wisdom newsletter.

For Saut's favorite stocks, you can download a .pdf copy here.

Strategist Saut: Accumulate Stocks With Favorable Risk/Reward

Raymond James market strategist Jeff Saut is out with his latest weekly missive and it's quite clear he's bullish in the intermediate term. However, he does think a consolidation could still happen in the near-term.

In particular, Saut points to oil:

"Indeed, over the past few weeks oil has become almost as extended above its 200 day moving average as it was in July 2008, and we all know how that ended. Not that I am predicting a similar collapse in the price of Texas Tea, but rather that a consolidation/pullback period is likely, which could provide the backdrop for another 'leg up' in stocks (even the energy stocks)."

Overall, Saut thinks any pullback in the S&P 500 will be around the 1315-1320 area. Saut was buying stocks during the February/March decline and it seems he has a 'buy the dips' mentality.

So what stocks does he like? Saut prefers favorable risk/reward setups and offers up Hospira (HSP) as a name with a lowered risk profile. He also continues to like Williams Companies (WMB). We just noted that Dan Loeb's hedge fund Third Point LLC likes WMB as well. You can read an in-depth analysis of Williams Companies in the most recent issue of our newsletter.

In other energy names, the market strategist also likes EV Energy Partners (EVEP), LINN Energy (LINE), and Clayton Williams Energy (CWEI).

Embedded below is Jeff Saut's latest market commentary:

Jeff-Saut-Market-Commentary


You can download a .pdf copy here.

For more insight from market strategists, head to our recent coverage of Don Coxe, who says the risk of a stagflationary bond bear has arrived.

Third Point Focused on Spin-Outs & Closes to New Investors

Dan Loeb's hedge fund Third Point returned 8.6% in the first quarter of 2011 and manages $6.7 billion. Most recently, we noted Third Point's reduced net long exposure. Last time around, Loeb mentioned he would no longer be penning the letter to investors, but we still get some color on their portfolio construction and where they're finding value.

In particular, Third Point is focused on spin-outs as the Q1 letter details:

"At our annual Investor Day in January, we told you that we were enthusiastic about equities in a market poised for a wave of corporate transactional activity on a scale not seen since 2007. A combination of factors including record high levels of cash on corporate balance sheets, highly incentivized LBO firms, the return of cheap debt financing, and anemic top line growth is conspiring to make this an ideal period for the kind of special situation equity opportunities that are a core part of our strategy."

Loeb's hedge fund has focused specifically on the energy sector, owning positions in Williams Companies (WMB), El Paso (EP), and CVR Energy (CVI). We highlighted that Third Point started a position in El Paso in February.

Regarding Williams Companies (WMB), Third Point originally invested in November and has since added to the position as the company announced plans to split itself via an IPO of its E&P business in the second half of the year and a full spin of the remaining business in early 2012.

This is the type of event-driven investing Third Point loves. Besides Third Point, numerous other prominent hedge funds own a position in Williams Companies. You can read an in-depth analysis of WMB by subscribing to our Hedge Fund Wisdom newsletter as we featured the stock in our most recent issue.

Also of note is the fact that Third Point will close to new investors effective June 1st. They believe this is a prudent time and this is not the first time they've done so.

Embedded below is Third Point's first quarter letter to investors (email readers come to the site to read it):



To learn how to invest like Dan Loeb, check out his recommended reading list.

Jeff Saut: A Lot of Price Risk Has Been Removed From Select Stocks

The last time we checked in with market strategist Jeff Saut in late February, he was putting money to work in stocks, but cautioned that the correction was not yet over. And he was right, as the market fell 4.77% further in the weeks after his prescient call.

This time around, his latest missive is entitled, "Be Conservative, Not Conventional." With a title like that, one can easily guess what the gist of his message is. He quotes the wise value-investing-father Benjamin Graham who wrote, "The essence of investment management is the management of RISKS, not the management of RETURNS. Well-managed portfolios start with this precept."

Saut hints that the recent low in the market on March 16th could be "THE" low for quite some time, but if a re-test were to occur, he'd be a buyer. He also reiterated his call in buying Williams Companies (WMB) when it was trading around $28.70. This stock has been a hedge fund favorite and you can read an in-depth analysis of WMB in our current issue of Hedge Fund Wisdom.

He also cites fondness for Peoples United Financial (PBCT), LINN Energy (LINE), and EV Energy Partners (EVEP).

Overall, the market strategist concludes that, "I think a lot of the price risk has been removed from select stocks and therefore I am not afraid to gradually accumulate favored names."

Embedded below is Jeff Saut's latest market commentary:



You can download a .pdf copy here.

More insight from the strategist can be found in his thoughts on the never-ending market cycle of fear, hope and greed.

Dan Loeb's Third Point Buys El Paso (EP)

Dan Loeb's Third Point Offshore Fund is out with its monthly update on positioning and exposures. The key takeaway here is that Third Point has initiated a position in gas producer El Paso (EP) since the fourth quarter.

The second most notable takeaway is that Potash (POT) is no longer among their top holdings. The stock sold-off hard recently, so that could be the culprit. Or, perhaps they sold shares, other holdings appreciated in value, or they ramped up their stakes in other names; it's tough to discern.

Third Point's Top Positions

1. Gold
2. Delphi (both equity & debt)
3. Chrysler (multiple securities owned)
4. El Paso (EP)
5. LyondellBasell (LYB)


Some of the fund's top winners were gold, NXP Semiconductors (NXPI), El Paso (EP), Technicolor (multiple securities owned), and Williams Companies (WMB). Per their latest disclosure, Third Point also now owns multiple securities in NXPI after previously owning just the equity.

El Paso is the second gas related entity they've invested in recently. Third Point bought WMB in the fourth quarter, as did many other hedge funds. You can read about the investment thesis on WMB in the equity analysis section of our new issue of Hedge Fund Wisdom.

The top losers last month in Third Point's portfolio included Wells Fargo (WFC), BioFuel Energy (BIOF), CIT Group (CIT), Accuride (ACW), and Rentokil Initial PLC (RTO in London, RTOKY on the pink sheets). Wells Fargo also appears to be a new equity position for the hedge fund, unless it is a debt stake that has previously been undisclosed; the disclosure is unclear.

Overall, Loeb favors post-reorganization equities. In particular, he's been active in Smurfit-Stone Container (SSCC), opposing the takeover. LyondellBasell (LYB), another post-reorg equity, continues to be one of Loeb's largest positions.

For the month of February, Third Point was up 3.6% and is up 7.6% for 2011 thus far. Its Offshore Fund has now seen an impressive 19% annualized return since inception in December 1996.


Exposure Levels

Regarding their latest exposure levels, Third Point is 56.2% net long equities with its largest net long exposure in basic materials at 12.1% and consumer at 11.5%. Over the past month or so, Third Point has reduced net long equity exposure by almost 5%.

In credit, the hedge fund is 11.5% net long distressed, 16.5% net long asset backed securities (ABS) which include residential mortgage backed securities (RMBS) and commercial mortgage backed securities (CMBS). They are also net short -5.4% government securities, cutting their short exposure to this asset class almost in half.

For a full assessment of Loeb's portfolio and the investment thesis behind some of his picks, head to the brand new issue of Hedge Fund Wisdom that was just released.

Jeff Saut: Putting Money to Work in Stocks, But Correction Not Over

Market strategist Jeff Saut is out with his latest commentary and begins with a focus on oil. Unrest in the Middle East has caused prices of black gold to surge from $84 to over $100 per barrel and this is worth keeping an eye on. Turning to his latest stance on the stock market, he thinks the correction is not yet over, even after last week's sell-off.

He writes,

"The recent stock 'high' was accompanied by the most bullish stock sentiment since the DJIA's peak in October 2007 (69% 'Bulls' according to Market Vane); as well, the Volatility Index (VIX/19.22) recorded its lowest reading since the summer of 2007 (read: too much complacency). Ladies and gentlemen, it is rare to see those kind of extreme readings worked off in a mere three sessions. So yeah, I believe the correction has more to run, yet I continue to think it is a mistake to become too bearish."

As such, Saut has gradually begin to put money to work in stocks during the pullback. He sees the intermediate trend as up and thinks you should buy stocks on your watch-list during further sell-offs.

He points to his own watch list and highlights some of the stocks that have held up best like Skyworks Solutions (SWKS), Stanley Black & Decker (SWK), Tempur Pedic (TPX), and Williams Companies (WMB). For the investment thesis on WMB and to see why hedge funds have been buying, we featured the stock in the equity analysis section of the new issue of our Hedge Fund Wisdom newsletter that was just released.

Embedded below is the latest investment strategy from Jeff Saut:



You can download a .pdf copy here.

Leon Cooperman Optimistic About Equities, Concerned About Employment

Legendary investor Leon Cooperman of Omega Advisors recently appeared on CNBC to give his take on the markets. The hedge fund manager oversees $6 billion and founded his firm after working at Goldman Sachs for 25 years.

Omega Advisors is currently optimistic and argues that the United States is not akin to Japan and won't see a lost decade. Cooperman highlights that while the consensus view is optimistic, many people aren't invested that way. He points to outflows in the equity market and inflows to the bond market as people seek stability after a tumultuous ride through the financial crisis.

Omega Advisors is currently 80% net long. This is much more long-oriented than the average hedge fund exposure levels. Cooperman is now the second subsequent major hedge fund manager to come out and say that he's optimistic on the markets. Appaloosa Management's David Tepper is also optimistic.


Cooperman Sees New Economic Expansion

Cooperman says that, "We're eighteen months into a new economic expansion. The average economic expansion has lasted five years. There's still plenty of runway." Now while he is optimistic regarding the future, he obviously acknowledges that things don't go straight up and he could see a potential market correction in February. However, after that, he is optimistic over the long haul provided we see improvement in unemployment numbers.

Hedge Fund Manager Prefers Equities Over Bonds

Cooperman says that, "stocks, at worst, are the best house in a bad neighborhood and if by some miracle this whole game works and we deal with fiscal issues long-term and stop kicking the can down the road, then I think stocks are the best house in a good neighborhood."

Below is the video of Cooperman's thoughts on equities and email readers will need to come to the site to view it:




Cooperman Likes Energy and Financials

Cooperman rattled off a few energy names he owns including Denbury Resources (DNR), Williams Companies (WMB), and McMoRan Exploration (MMR). Just last week we highlighted that Barry Rosenstein's hedge fund JANA Partners bought WMB as well.

In the financial sector, he likes Sallie Mae (SLM), JP Morgan (JPM), and singles out E*Trade Financial (ETFC) as a potential takeover target. The hedge fund manager also likes Teva Pharmaceutical (TEVA) which has a 20% return on equity and is a growth business trading at 11x earnings. Lastly, he mentions that he's long General Motors (GM) and Ford (F) too, as there's a lot of positive operating leverage there.

Embedded below is the video of Cooperman's thoughts on specific sectors:



And here is the final video with Cooperman's expanded comments:




Omega Buys Energy XXI Shares

Additionally, Omega Advisors just filed a disclosure of recent activity in UK markets regarding their purchase of shares in Energy XXI (LON: EXXS). Per the notification, Omega Advisors has disclosed a 5.9% ownership stake in Energy XXI with 4,062,380 shares. This is due to portfolio activity as of December 31st, 2010.

While Cooperman has purchased the EXXS shares traded in the UK, shares of Energy XXI are also traded on the Nasdaq under ticker symbol EXXI as well. Per Google Finance, Energy XXI "is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico."

To view Cooperman's latest investments, subscribe to our Hedge Fund Wisdom newsletter as we'll reveal his portfolio in our new issue that comes out soon.

JANA Partners 2010 Letter: New Positions in Cablevision (CVC), Williams Companies (WMB)

Barry Rosenstein's hedge fund JANA Partners released its year-end 2010 letter and in it we see they've returned 14.3% annualized since inception in April 2001. JANA returned 8.4% last year and you can see how they stack up against others in our post on 2010 hedge fund returns.

New Positions

We'll start with the newest additions to JANA's portfolio as they fall in the special situations category. They like these companies now that they are considering value-maximizing moves.

Cablevision (CVC): This cable company caught their eye due to the announced spin-off of Rainbow Media (cable networks that include the hit show Mad Men). This tax-free transaction will take place by the middle of the year and JANA likes that this spin-off will leave a more pure-play cable company that could be a consolidation target.

Market Folly readers will recall that many hedge funds owned CVC earlier last year (including JANA) due to the company's spin-off of Madison Square Garden (MSG) in a value-unlocking event. We wouldn't be surprised to see more event-driven/catalyst aficionados purchasing this name for the same reasons JANA has.

Williams Companies (WMB): Rosenstein's hedge fund has previously owned this stock before and returned due to the CEO's retirement in October 2010. JANA says, "We expect that WMB will find a way to separate their large exploration and production portfolio from their pipeline assets."

Renault SA (RNO FP): JANA is looking for the company to set higher free cash objectives and to resume dividend payments.

Embedded below is JANA Partners' year-end 2010 letter where you'll also find updates on their stakes in TNT NV (TNTTY), Charles River Labs (CRL), and Convergys (CVG). Email readers come to the site to read the letter:



For other hedge fund letters, we've started to post a bunch of other prominent manager commentary including:

- David Einhorn's Greenlight Capital letter
- John Paulson's year-end letter to investors
- Summary of Kleinheinz Capital's letter
- Dan Arbess & Xerion Fund's 2011 strategy