Graham & Doddsville Fall 2018 Issue: Tweedy Browne, Greenhaven Road & More

Columbia Business School has just released the Fall 2018 issue of its Graham & Doddsville newsletter.  In it, they interview members of Tweedy, Browne Company such as Roger De Bree, Andrew Ewert, Frank Hawrylak, Jay Hill, Amelia Koh, Tom Shrager, John Spears, and Bob Wyckoff.  They also interview Scott Miller of Greenhaven Road Capital.

Additionally, the issue also includes student investment pitches such as long JD.com (JD) and long Qorvo (QRVO)


Tweedy Browne Buys Baidu, Sina, AutoZone

Tweedy recently bought some Chinese equities: search engine giant Baidu (BIDU) and Sina (SINA), which owns Weibo, a popular social media business.  They like the profitable advertising business models but have smaller position sizes due to various risks.

Domestically, Tweedy also purchased shares of AutoZone (AZO):  "If you lookover the previous 11-yearperiod, its intrinsic value grew by 16% per annum, with a significant percentage of that growth driven by share buybacks. The historical record also revealed a stable and defensive business. Same store sales at AutoZone have grown in 19 out of the last 20 years, including in 2008 and 2009.AutoZone has also historically produced high returns, with a 14% ROA (return on assets) and a roughly 30% lease adjusted ROIC (return on invested capital)."


Greenhaven Road Long Etsy, Fiat, Yelp

Greenhaven Road's founder talks about his positions in Etsy, (ETSY), Fiat Chrysler (FCAU) and Yelp (YELP). 

On Fiat, he notes: "Fiat Chrysler is reducing the low margin fleet business by getting out of sedans and focusing on SUVs, aligning themselves with customer preferences and higher margins.They are also going to either spin off or sell their parts division. If you backout the parts business, you're getting the core business for less than 3x earnings excluding net industrial cash and the parts business. That’s an attractive multiple for a growing earnings stream and a business that should remain profitable even if US new car sales decline by 30%."

Graham & Doddsville New Fall 2018 Issue

Embedded below is the new issue:



You can download a pdf copy here.

John Mirshekari's Presentation on Aecom & URS: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is John Mirshekari of Fidelity Investments.  His presentation was entitled "Inflections in Incentives" and he also pitched Aecom (ACM) and URS (URS).


John Mirshekari's Value Investing Congress Presentation

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Key is CEOs need skin in the game. Beneficial interest as % of annual cash compensation. Pinnacle Air was 2x and Sky West was 39x. 

Insider ownership is one thing he looks at.  Capital allocation is one of the few inefficiencies left in the market.  Management incentives affect capital allocations. 

1. Watch the cannibals. (Share repurchases) Should pay more for a business in hands of a manager with pro shareholder leanings. 

2. Incentives drive decisions. Why don't managements buy back stock? Because their compensation schemes encourage size, not stock return. Revenue, EBITDA, income are the usual, not ROIC, three year relative stock return. 

Example: AutoZone (AZO). Perfectly aligned with shareholders. Share count down 75% over last ten years. AZO compounds at 21% vs. SPX 3%. Inflections in incentives. Huge opportunities to make money.

Bullish on Aecom (ACM)

Engineering company that has had this happen. Say on pay is pressuring CEOs compensation plans. They were hit by this in 2011. So they tried to change. They replaced EBITDA growth with EPS, CFO per share, FCF per share. Key is "per share" so no incentive to grow without actual performance. Include goodwill impairments in comp calculation. Focus on share count means better use of capital. 

They stopped M&A and shifted to share repurchases. They bought back 1/3 of the shares 18 months after the say on pay change in compensation. Stock still attractive and up 42% even in bear case. Bull case is 90%. 

URS (URS)

Comp with ACM. Civil engineering company. Bridges, roads on a cost plus basis. $7 EPS by 2015 could lead to 100% upside.

Could begin repurchasing stock over next two years.  FCF is $5.38 per share last four years. Adjusted for a non-recurring WC charge, we get $7.16 per year. In the past they have done 11 years, at $6B in cash, more than the value of the company today. 

Worst ROE in the industry. But could double it.

In the past compensation plan was only net income. This year they added relative total share return.  They had low say on pay this year. 

Amended proxy says they may use ROE, EPS, and including a future goodwill impairment charge.  Management says they will not do any acquisitions this year. 

 

Could actually do FCF of $16 on $7 EPS.  14x gets $98 stock price which is 100% upside.

 

Says there is no shortcut, you have to read proxies.

Be sure to check out the other presentations from the New York VIC here.

Brand New Hedge Fund Wisdom Issue Just Released

The brand new Q1 2012 issue of our premium newsletter has just been released!  Subscribers please login at hedgefundwisdom.com to download it.

Included in the new 85-page issue:

- List of consensus buys & sells among top hedge funds

- Equity analysis on: Tempur-Pedic (TPX), AutoZone (AZO) & Equinix (EQIX)

- The latest portfolios of 25 top hedge fund managers: Seth Klarman, Warren Buffett, David Einhorn, John Paulson, David Tepper, Julian Robertson, Carl Icahn, Steve Mandel, Bill Ackman, Dan Loeb, Lee Ainslie, John Griffin, George Soros, Roberto Mignone, Leon Cooperman, John Burbank, Bruce Berkowitz, Chase Coleman, Philippe Laffont, Richard Perry, Larry Robbins, Andreas Halvorsen, Thomas Steyer, Barry Rosenstein & Alan Fournier.

- Expert commentary on what each fund has been up to


Want to see a sample?  Click here to download an old issue for free.


See What Top Hedge Funds Have Been Buying & Selling


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Eddie Lampert Sells Autozone Shares & Covered Calls

Eddie Lampert's hedge fund ESL Partners just filed an amended 13D with the SEC regarding its position in AutoZone (AZO). After owning almost 5 million shares in January, Lampert now owns 2.4 million shares.

The hedge fund manager executed numerous open market sales of AZO shares at the beginning of April at prices ranging from $378-$385, with the bulk of them coming in the middle of the range.

Earlier in the year, Lampert cut his stake in AutoZone and distributed almost a billion dollars worth of AZO shares to investors. Additionally, he used some AZO shares as payment in kind to meet year-end redemptions.

In December of 2010, ESL Partners owned over 33% of the company. In the latest filing, they own only 6.1%. Lampert recently made a rare television appearance and talked about the markets and his positions in retailers.


Covered Call Sales

Lampert also sold 1,904 covered call options (representing an aggregate of 190,400 shares). These calls have exercise prices of $350, $360, and $370. The expiration dates include June 16th, 2012 and September 22nd, 2012. In aggregate, Lampert netted $5,011,110 from the call option sales. The vast majority of the calls sold were the June $360 strike.

It appears as though Lampert is hedging his position a little bit. AZO shares have been on quite a run, from $280 up to $376 over the past year.


AutoZone Thesis

AutoZone is a specialty retailer that sells automotive parts and accessories. The investment thesis on AutoZone is largely predicated on two factors. First, bulls point to the fact that more and more cars are aging each year and are in need of more parts/repair.

Second, while many traditional retailers face heat from internet-based competition offering lower prices, bulls argue that car parts are something that you "need now" if a car is broken. Not to mention, those less familiar with the mechanical aspects of vehicles seek professional advice/help from AZO staff. Lampert has been selling shares, but AZO has been on quite a run.

ESL had returned 25% annually in its first 14 years. In 2007 it was down 27% and in 2008 it was down 33%. In 2009, the fund rebounded, up 55% that year and up 16% in 2010.

For more on this manager, head to lessons Lampert's learned as an investor.

Eddie Lampert: Risk Coming Back to Markets (Interview)

This morning on CNBC, Eddie Lampert was interviewed on a myriad of topics. The chairman of Sears Holdings (SHLD) and hedge fund manager of ESL Investments/RBS Partners says that risk is 'coming back' to markets.


On Risk & the Markets

With the low interest rate environment, Lampert tosses out a quote we've heard a lot over the past few years: "They (investors) want a return on their money rather than just a return of their money."

David Bonderman, founding partner of Texas Pacific Group (TPG) also joined the conversation and argued that "the economy is better than you think it is ... the US is not in trouble in the short-term, maybe the long-term is another story."


On Bricks & Mortar Retail

Lampert notes that the "world is very different" and certain great iconic American brands like Disney (DIS) have had success, while there's others that need reinvention (JC Penney, Sears, etc).

The Sears chairman mentions that both retail and media are in re-invention mode, saying some companies will have "profitless prosperity."

He also argues that another one of the businesses he owns in size, Autozone (AZO), is a great retail business because it's less affected by internet competition. If something's wrong with your car and you need a new part, you need it now rather than waiting a few days for it to arrive via shipping.

Embedded below are the videos of Eddie Lampert's interview (email readers click to come view):

Video 1:


And Video 2:



There were a bunch of rare appearances on CNBC this morning, so don't miss:

- John Phelan of MSD Capital on the economy & markets

Eddie Lampert's Hedge Fund RBS Partners: Portfolio Update (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 RBS Partners, the parent company of Eddie Lampert's hedge fund ESL Investments. Prior to forming ESL, Lampert worked with Robert Rubin at Goldman Sachs risk arbitrage department. Prior to that, Lampert graduated from Yale where he was a member of the skull and bones secret society, as well as Phi Beta Kappa. Lampert runs highly concentrated portfolios and his focus has long been on the retail sector. He has graced Forbes' billionaire list but was one of the top hedge fund losers in 2008.

Recently, we posted up some interesting activity out of Lampert's investment vehicles. And in the past, we've also covered Eddie's 2009 annual letter. Interestingly enough, Richard Rainwater has dubbed Lampert "the greatest investor of his generation."

The positions listed below were RBS Partners' 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
CIT Group (CIT)
Wells Fargo (WFC)
Bank of America (BAC)


Increased Positions
Sears Holdings (SHLD): Increased by 27.8%
Acxiom (ACXM): Increased by 22.1%
Citigroup (C): Increased by 14%
Autozone (AZO): Increased by 8.1%
Autonation (AN): Increased by 5.9%
Capital One (COF): Increased by 5.3%


Reduced Positions
SLM (SLM): Reduced by 12.1%
Genworth Financial (GNW): Reduced by 5%


Removed Positions (Sold out completely):
n/a


Top Holdings by percentage of assets reported on 13F filing

1. Sears Holdings (SHLD): 49.9%
   
2. Autozone (AZO): 28.9%
   
3. Autonation (AN): 13.8%
   
4. Capital One (COF): 3.3%
   
5. CIT Group (CIT): 1.1%
   
6. Citigroup (C): 0.9%
   
7. Genworth Financial (GNW): 0.9%
   
8. Wells Fargo (WFC): 0.4%
   
9. Acxiom (ACXM): 0.3%
   
10. SLM Corp (SLM): 0.3%
    
11. Bank of America (BAC): 0.1%
    

Eddie Lampert's hedge fund is the definition of a concentrated portfolio. But, that's what happens when you effectively takeover a company (in this case Sears). Many compared Lampert to Warren Buffett a few years ago, but those comparisons have gone by the wayside as Lampert has struggled to generate the returns many thought he was capable of. While he has definitely helped engineer Sears' recovery, the job is by no means done.

They sold a slight amount of SLM and added modestly to their Sears, Acxiom, and Citigroup stakes. Citigroup has made a lot of headlines as of late on our site, mainly due to the fact that lots of hedge funds have been adding C. Additionally, Eddie Lampert shows a new stake in CIT Group. But, just as we've noted with all the other hedge funds that now show this stake, it is most likely due to a debt to equity conversion. Lampert also shows new (small) stakes in Wells Fargo (WFC) and Bank of America (BAC).

That about wraps up his portfolio because as Sears goes, Lampert goes. All data used for this article comes from Alphaclone. It's by far the best hedge fund replicator we've ever used and they of course pull data directly from the SEC filings so that you can backtest tons of strategies. RBS Partners' assets reported on the 13F filing were $11 billion this quarter compared to $9.3 billion last quarter. As you can see, that's almost a $1.7 billion increase in assets invested long in US equities. Remember that these filings are not representative of the hedge fund's entire base of AUM.

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, Lee Ainslie's Maverick Capital, and Dan Loeb's Third Point. Check back daily for our new updates.

Eddie Lampert Distributes Sears, AutoZone, & AutoNation Shares

The following is a guest post from StreetCapitalist.com, a site focused on event driven value investments.

As most of you know, Eddie Lampert's investment vehicles ESL Investments and RBS Partners have substantial stakes in three businesses: Sears Holdings (SHLD), AutoZone (AZO), and AutoNation (AN).

(HT: Matt Miller) On January 11, his investment vehicles filed three SEC Form 4 filings, detailing an interesting transaction.

Sears Holdings

ESL Institutional Partners, L.P. (“Institutional”) distributed these shares of common stock, par value $0.01 per share, of Sears Holdings Corporation (“Shares”) to its general partner, RBS Investment Management, L.L.C. (“RBSIM”), in an in-kind pro rata distribution for no consideration. RBSIM then distributed these Shares to its members in an in-kind pro rata distribution for no consideration. RBS Partners, L.P. (“RBS”) distributed these Shares to its partners in an in-kind pro rata distribution for no consideration. ESL Investment Management, L.P. (“ESLIM”) distributed these Shares to its partners in an in-kind pro rata distribution for no consideration. These Shares include 3,565,316 Shares distributed by RBS in an in-kind pro rata distribution for no consideration, 244,153 Shares distributed by RBSIM in an in-kind pro rata distribution for no consideration and 15,678 Shares distributed by ESLIM in an in-kind pro rata distribution for no consideration. As a result of these distributions, Mr. Lampert directly holds Shares in which he previously had an indirect interest. The distributions did not change Mr. Lampert’s overall pecuniary interest in securities of Sears Holdings Corporation. (Sears Holdings SEC Form 4).

AutoZone

ESL Institutional Partners, L.P. (“Institutional”) distributed these shares of common stock, par value $0.01 per share, of AutoZone, Inc. (“Shares”) to its general partner, RBS Investment Management, L.L.C. (“RBSIM”), in an in-kind pro rata distribution for no consideration. RBSIM then distributed these Shares to its members in an in-kind pro rata distribution for no consideration. RBS Partners, L.P. (“RBS”) distributed these Shares to its partners in an in-kind pro rata distribution for no consideration. These Shares include 792,882 Shares distributed by RBS in an in-kind pro rata distribution for no consideration and 48,659 Shares distributed by RBSIM in an in-kind pro rata distribution for no consideration. As a result of these distributions, Mr. Lampert directly holds Shares in which he previously had an indirect interest. The distributions did not change Mr. Lampert’s overall pecuniary interest in securities of AutoZone, Inc. (AutoZone SEC Form 4).

AutoNation

ESL Institutional Partners, L.P. (“Institutional”) distributed these shares of common stock, par value $0.01 per share, of AutoNation, Inc. (“Shares”) to its general partner, RBS Investment Management, L.L.C. (“RBSIM”), in an in-kind pro rata distribution for no consideration. RBSIM then distributed these Shares to its members in an in-kind pro rata distribution for no consideration. (AutoNation SEC Form 4).


These transactions all appear to be doing the same thing, taking major holdings of ESL/RBS and giving them to investors in their funds. The reasons for doing such a transaction can vary. Think back to when Warren Buffett decided to unwind his partnership. He liquidated assets, paying a small dividend, and also distributed shares of Berkshire — which he was chairman of. For an investor in his partnership, they could either keep their faith in him and hold on to their Berkshire shares or sell. You all know how that turned out. We also note that William C. Crowley made similar filings. Crowley is Executive Vice President and Chief Administrative Officer at Sears Holding Corporation.

For Lampert, there could be other reasons too. Some funds that take controlling stakes and then decide to wind down find it more efficient to distribute out large holdings rather than sell them onto the open market. Or, it could be a way to give investors in the fund an opportunity to be extricated from having such large holdings have a dominant influence on returns. This will be a situation to watch for any Sears, AutoZone, or AutoNation holder.


The above was a guest post from StreetCapitalist.com, a site focused on event driven value investments.

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For more coverage of SEC filings, check out our series of hedge fund portfolio movements where we track the portfolios of some of the most prominent investors out there.

Eddie Lampert Lost $30 Million an Hour

According to the NY Post's calculations, Eddie Lampert (ESL Investments) has lost $30 million an hour from his top 9 holdings since September 19th (26 trading days). Some of these top holdings include Sears (SHLD), Autozone (AZO), Autonation (AN), and Citigroup (C). The Post writes,

"Lampert's Greenwich, Conn.-based ESL Investments saw its holdings in the eight companies fall by an average of $193 million each trading day - which translates into $30 million an hour for each of the 6 1/2-hour trading days.

The investor lost about $587 million on Auto Nation, $480 million on AutoZone, $174.7 million on Home Depot and $162.4 million on Citigroup. The group of nine companies fell 39.4 percent over the 26 trading days - compared with a 26.4 percent drop for the Dow Jones industrial average."

Value is dead in this environment.

Source: NY Post