Greenlight Capital's Q4 Letter: New Positions in Micron, BP, & Anadarko Petroleum

David Einhorn's hedge fund Greenlight Capital returned 19.1% net in 2013.  Greenlight's fourth quarter letter to investors unveils their thesis on new positions in Micron Technology (MU), BP (BP), and Anadarko Petroleum (APC).

Greenlight likes Micron because the industry has started to act a bit more rationally and MU will buyback shares instead of building new factories.

Their BP stake is a play on increasingly shareholder friendly capital allocation policies as well and they think the company is worth $70 per share (it trades around $49 now).  

Additionally, their letter talks about some positions they've closed recently like Airbus Group (formerly EADS), and ThyssenKrupp.

At the end of 2013, Greenlight's largest positions in alphabetical order were: Apple (AAPL), General Motors (GM), Marvell Technology (MRVL), Micron (MU), and Vodafone (VOD).

Thanks to ValueWalk who posted up Greenlight's Q4 letter and you can view it below:




For more on Einhorn, we just yesterday revealed some more of Greenlight's recent portfolio activity.

And for more year-end hedge fund letters, head to Third Point's Q4 letter here.

Goldman Sachs VIP List: Most Important Stocks To Hedge Funds: Q1 2012

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor report.  In it, they reveal the latest VIP list of 50 stocks that are most important to hedge funds.  These are the positions that appear most frequently in the top 10 holdings of fundamental focused hedge funds.

This quarter, they've also released a new list of very important short positions to hedge funds which we've posted up as well.

Goldman's VIP list of the most important holdings is accessible on Bloomberg via < GSTHHVIP >.  It has "outperformed the S&P 500 by 55 bp on a quarterly basis since 2001."

Goldman Sachs VIP List (Q1 2012)

Stock: Number of funds with stock as top 10 holding

1. Apple (AAPL): 106
2. Google (GOOG): 73
3. Express Scripts (ESRX): 56
4. Microsoft (MSFT): 46
5. Qualcomm (QCOM): 38
6. Citigroup (C): 31
7. General Motors (GM): 29
8. Priceline.com (PCLN): 29
9. JPMorgan Chase (JPM): 27
10. Liberty Media (LMCA): 26
11. Delphi Automotive (DLPH): 24
12. BP (BP): 23
13. Pfizer (PFE): 23
14. Tyco (TYC): 22
15. Visa (V): 21
16. Yahoo (YHOO): 21
17. LyondellBasell (LYB): 20
18. Anadarko Petroleum (APC): 19
19. Bank of America (BAC): 17
20. Ford Motor (F): 17
21. WellPoint (WLP): 17
22. American International Group (AIG): 16
23. Charter Communications (CHTR): 16
24. eBay (EBAY): 16
25. Rock-Tenn (RKT): 16


It's no surprise that Apple (AAPL) is the most widely owned top position amongst fundamental hedge funds.  But despite that, Greenlight Capital's David Einhorn argued hedge funds actually have less than 2% of assets in his Ira Sohn conference presentation.  We've also posted Dan Loeb's thesis on AAPL as he was a big buyer of shares.

Both Tyco and Priceline were featured in the equity analysis section of our Q4 2011 Hedge Fund Wisdom newsletter due to heavy ownership by top funds.  TYC is an event-driven play while PCLN is a huge growth and international play.


Here's the rest of Goldman's VIP list:

26. Seagate Technology (STX): 16
27. Berkshire Hathaway (BRK.B): 15
28. Cisco Systems (CSCO): 15
29. Equinix (EQIX): 15
30. Hertz Global (HTZ): 15
31. Liberty Interactive (LINTA): 15
32. Pioneer Natural Resources (PXD): 15
33. Visteon (VC): 15
34. Valeant Pharmaceuticals (VRX): 15
35. Wells Fargo (WFC): 15
36. Baidu (BIDU): 14
37. Dollar Thrifty (DTG): 14
38. Hess (HES): 14
39. Mastercard (MA): 14
40. News Corp (NWSA): 14
41. Williams Companies (WMB): 14
42. Barrick Gold (ABX): 13
43. CIT Group (CIT): 13
44. Capital One (COF): 13
45. Calpine (CPN): 13
46. Devon Energy (DVN): 13
47. EMC (EMC): 13
48. Hewlett Packard (HPQ): 13
49. Illumina (ILMN): 13
50. Salesforce.com (CRM): 12

Of the above, we've previously highlighted why Passport Capital likes LINTA.  And in the brand new issue of our Hedge Fund Wisdom newsletter, we've analyzed Equinix (EQIX), a big new position by Philippe Laffont's Coatue Management and John Thaler's JAT Capital.

Some of the stocks on the list are brand new additions as enough hedge funds boosted their positions in Q1: ABX, AIG, BRK.B, COF, CPN, CRM, DVN, EBAY, EMC, EQIX, F, HES, HTZ, ILMN, RKT, WLP.


Be sure to also check out Goldman's brand new list of hedge fund very important short positions.

David Einhorn Buys CBS, General Motors & Marvell Technology: Q3 Letter

David Einhorn's hedge fund Greenlight Capital just sent out its third quarter letter to investors and in it they reveal some of their latest portfolio activity. Einhorn's firm initiated brand new positions in CBS Corp (CBS), General Motors (GM), and Marvell Technology (MRVL) in the third quarter.

CBS Corp (CBS)

Greenlight likes CBS due to its growing retransmission fees, monetization of their content library, as well as the potential for increased advertising spending by clients. The hedge fund bought CBS at $20.79 per share (less than 10x their estimate of 2012 earnings) and it now trades just north of $25.

General Motors (GM)

The hedge fund writes on their new position in the largest automaker in the US that IPO'd last year: "GM is being priced by the market as a cyclical company trading at less than 6x this year's earnings. While some may see it as normal to value cyclicals at low multiples of peak earnings, we believe that 2011 is not a peak and, in fact, is below mid-cycle." They bought shares at $25.78 and GM currently trades around $24.

Marvell Technology (MRVL)

Einhorn's firm believes that hard disk drives won't become extinct anytime soon (the major bear case). They think the company will buy back 12% of its float and Greenlight bought at $14.35 per share (currently trades around $14.40).

The letter also follows up on Einhorn's short case on Green Mountain Coffee Roasters (GMCR) from the Value Investing Congress. Lastly, Greenlight mentions that they've sold out of their long positions in Pfizer (PFE) and BP (BP) during the quarter and covered their short of Amedisys (AMED).

Greenlight's Top Holdings at the end of Q3 in alphabetical order:

Apple (AAPL)
Gold
Market Vectors Gold Miners (GDX)
Microsoft (MSFT)
Vodafone Group (VOD)


Embedded below is Greenlight Capital's Q3 letter:



For more from Greenlight Capital, we detailed last week how Einhorn was buying gold miners.

Hedge Fund Manager Crispin Odey's Market Outlook

Odey Asset Management's founder Crispin Odey has released his most recent market outlook. Odey is a prominent UK fund manager and he believes that equities are attractive (yielding 5-6%) with earnings yields of 20-33%.

In particular, he singles out one stock he likes: BP (BP). We've highlighted in the past how David Einhorn's Greenlight Capital likes BP as well.

While Odey is constructive on equities, it should be noted that he has maintained this stance since before the most recent market turmoil. His previous commentary from back in May said that stockpicking is still working. So with the latest downturn, it seems he's gained even more conviction that equities are the right place to be but he's surely felt some pain along the way.

Below is Odey's latest commentary:

"Equities continue to trade badly, but this is no surprise. They have disappointed for 11 years; indeed most indices are where they were 15 years ago. However in a world where the geopolitical outlook is unresolvably bad, shareholders are not only being paid to be patient by high dividend yields but also pricing in a very high margin of safety.

The example I like is BP. When BP suffered from the Macondo rig disaster, the company's market capitalisation fell by $120 billion, the company set aside $30 billion in provisions and recently announced actual claims of about $5.5 billion. Has the share price recovered the missing $114.5 billion? Of course not. Presumably investors are pricing in more Macondos and, given that they actually cost just over $5billion each, they are expecting 20 such explosions. As an investor in the shares today this gives me a great deal of protection - a margin of error. It also convinces me that the stockmarket is a better historian than it is a forecaster or a mathematician.

So why are markets so depressed? Some European markets are down c. 27% this year. Firstly this is structural. Zero interest rates have an unusual effect in Europe. Compared to the Anglo-Saxon world, Continental European banks are funded through bonds and interbank lending, not deposits. Since interbank and bond borrowing rates have not fallen below 2%, corporate loans in Europe should be at 4.5% not at 2.5%. In fact corporate loan rates have failed to rise in Europe. Lending is therefore unprofitable. Banks are shrinking their loan books. The easiest loan books to shrink are the corporate loan books and that means rights issues for indebted companies as equity replaces debt. All this depresses equities, especially those with borrowings to roll.

The equity markets now act and behave like corporate bond markets. Equities yield 5-6% and many are on earnings yields of 20-33%. They are mouth-wateringly attractive because unlike debt they do not mature.

But the worries that look down on them from on high reflect the fact that whereas Continental European banks were not exposed to the excesses of America and the UK, they are over-exposed to the excesses of Southern Europe. At some point they will need recapitalising. Rather than dreading this, the default should lead to lending rates rising in Europe, even as banks are recapitalised.

Meanwhile this crisis has brought all shares down. It has brought down UK and US bank shares, despite the fact that since 2008, they have done much to improve their balance sheets. Loan to deposit ratios have fallen by 30% to around 120%, loan margins are up fivefold, provisions have risen sharply and, thanks to retained profits and rights issues, cash equity is up fourfold. They are all strong buys for me.

It may be confusing to find someone who believes that a crisis is on its way but is also happy to buy equities ahead of the crisis. My reason is that the worries have been there for so long, the causes are so obvious and the valuations are so cheap that this is a case of buying early. For me the crisis will bring resolution and with it higher prices.

Little wonder that volumes have been exceptionally light. Despite all of this volatility the only question that clients have been asking us is 'When should we buy the market?'

In the short term everything points to the fourth quarter of this year being strong in the USA. There is a restocking cycle taking place as the effects of the tsunami recede. Quantitative 'oil' easing and commodity price falls are helping consumption growth. The fall in bond yields is feeding through to refinancing of existing mortgages that could add 1.3% to GNP.

So yet again we may be entering a period when markets do not get a Greek default and the US economy strengthens. Cyclicals which have all been sold off will rally and banks, which have led the market down, will catch a bid.

I feel a bit like Sarah Bernhardt who said 'I eat myself to feed my work.' 31st August 2011"


And for more euro-centric commentary, head to the biggest fears of 15 European portfolio managers.

Value Investing Congress Notes: Jeffrey Ubben, Claude Leveille, Michael Kao

Yesterday we posted up a summary of the Value Investing Congress' first day featuring speeches by Howard Marks, Steve Romick, Whitney Tilson and more. Here are some notes from day two of the event:

Jeffrey Ubben (ValueAct Capital): This activist investor only makes 3 or 4 new investments each year and their average holding time is 3 years. ValueAct says that their biggest advantage in the markets is their ability to truly focus on the long-term.

Ideally, they look for companies with solid cashflow during both economic prosperity and troubled times. Their activist strategy really places focus on management teams and they've been involved in numerous CEO changes. Interestingly enough, ValueAct doesn't do any shorting.

Ubben's newest position is in Motorola Solutions (MSI). Investors will recall that the former Motorola was split into two: MSI and then Motorola Mobility (MMI). ValueAct likes MSI due to its improving margins and the fact that it is still growing through a down cycle. Also, the company's cash currently represents 40% of market cap. For more on this manager, head to our post on ValueAct's activist strategy as well as some of their recent portfolio activity.



Claude Leveille (Courant Investment Management): Leveille seems to be a contrarian as he focuses on avoiding the 'herd'. We've of course talked about the hedge fund herd mentality numerous times before. Some years Leveille does as few as 3 or 4 trades, noting that he is extremely patient to wait for the fat pitches. Courant uses no leverage and only holds long positions.

One fat pitch that Courant swung at was the 10% position he took in BP (BP) after the Gulf oil spill with an average price of $31. He believed that the market overreacted to the news and has been correct as shares currently trade around ~$44 per share. We also documented how Whitney Tilson's T2 Partners also bought BP during the spill, taking advantage of the carnage (you can see their presentation on BP here). And then this year, well after the oil spill, David Einhorn still saw value as his Greenlight Capital also bought BP.

Courant aligns its interests with investors by employing a modified fee structure. Leveille says that the typical hedge fund fee structure of a 2% management fee and 20% performance fee "grossly misaligns interests." As such, he has implemented a 0.75% management fee and then a 15% performance fee over a 5% hurdle. Also, the performance fees are not extracted, but rather remain in the fund itself.

Leveille says that the best investments are the ones that are simplest to understand. This is reminiscent of Warren Buffett's approach of only buying things in your "circle of competence." Leveille listed some of his mistakes as investor such as: not concentrating positions enough, going outside of his circle of competence, selling too early, and holding too much cash.

And speaking of cash, Courant currently has around 25% of assets parked there. Leveille has been buying South Korean equities and also US large caps in the healthcare sector. He also mentioned that he currently does not have any investments in gold, bonds, or the euro. As far as inflation hedges go, he thinks that buying companies with high return on equity (ROE) can help battle the printing presses.



Michael Kao (Akanthos Capital Management): Sticking briefly with the theme of protecting from inflation, Kao recommended going long the Hong Kong dollar as a form of protection. In terms of general investment opportunity, Kao sees perpetuity options as an attractive bet, pointing to GSE preferreds as an example. He also mentioned that he learned an early lesson to be 'long optionality' as a portfolio lined with asymmetric payoffs is a solid strategy.

Akanthos Capital focuses on convertible, capital structure, and event-driven arbitrage. Prior to founding Akanthos, Kao co-founded the arbitrage strategies group at Canyon Capital Advisors. He holds a B.S. in electrical engineering and computer science from the University of California at Berkeley and an MBA from the Wharton School at the University of Pennsylvania.



Jonathan Friedland (Porter Orlin): Friedland's presentation focused on American value investors hunting for value abroad. His first idea was Droga Raia (SAO: RAIA3), a retail drug store operator in Brazil. His second pick was Coal India (BOM: 533278), a non-coking coal and coking coal producer. Lastly, he mentioned Television Broadcasts Limited (HKG: 0511), a program production, licensing, and distribution company (it also trades as an ADR on the pink sheets as TVBCY). Friedland is the portfolio manager for Porter Orlin's Amici Global funds and previously worked at hedge fund Zweig-Dimenna.

For more coverage of this event, be sure to check out our summary of the Value Investing Congress from the first day's speakers.

Shumway Capital Returns Capital to Investors, Will Manage Internal Assets

Chris Shumway's hedge fund Shumway Capital Partners sent out a letter to investors today notifying them that the fund will be returning capital to outside investors. The firm will live on, instead only managing internal capital. Shumway, who has seen 17% annual returns, is one of the widely regarded Tiger Cub hedge funds started by former members of Julian Robertson's Tiger Management.

Late last year, Chris Shumway announced that he would be stepping down from his Chief Investment Officer role. This initiated a wave of redemptions as investors in the funds became wary. Shumway writes,

"In a sense, these changes created more risk for many of you who committed to stay invested in SCP and makes short term results of the fund a primary issue for us all. As a result, it has become more difficult for us to focus on long term investing as we have for the last nine years, which I believe has been a main driver of our success."

It's obvious from the above that Shumway is not fond of Wall Street's and an investor's focus on short-term performance. We'd venture to guess that Shumway also somewhat tired of the 'corporate' nature of running a large investment firm. Catering to each investor's concerns meant less and less of his time was dedicated to investing.

Shumway isn't alone in his desire to focus on investing for the long-term. Fellow Tiger Cub manager Roberto Mignone of Bridger Management closed to new investors, effectively capping assets under management so that he could focus on investing rather than having to worry about running a large organization.

It will be interesting to see who stays behind at Shumway to manage internal capital and who leaves to start their own funds. There are already a few notable Shumway alums managing their own funds including John Thaler's JAT Capital, Anu Murgai's Suranya Capital Partners, and Matthew Crakes' Greenhart Capital. The reason we mention these established and potentially future Shum-alum funds is that some former SCP investors could potentially allocate capital there.

Shumway will return outside capital by the end of the first quarter, which undoubtedly means they'll be selling partial positions. Here are Shumway's top 10 holdings as of September 30th, 2010. We'll get an updated look at their holdings here in a few weeks, so keep in mind the below is quite dated:

1. Apple (AAPL)
2. Citigroup (C)
3. Priceline.com (PCLN)
4. Pfizer (PFE)
5. Las Vegas Sands (LVS)
6. Baidu (BIDU)
7. SPRD Gold Trust (GLD)
8. Target (TGT)
9. Air Products & Chemicals (APD)
10. BP (BP)

A screenshot of Chris Shumway's letter is posted below via ZeroHedge:

(click to enlarge)

It will be interesting to see what happens to Shumway's portfolio once outside capital has been returned and the fund is only managing internal capital.

David Einhorn Buys BP (BP)

David Einhorn recently penned his Greenlight Capital year-end letter. In it, we learn that the manager started a brand new position in BP (BP) during the fourth quarter. Greenlight's average purchase price was $41.18 per share.

Of his new stake, Einhorn writes,

"The Deepwater oil spill in April 2010 caused a significant decline in BP's share price. BP reserved nearly $40 billion pre-tax to account for costs related to this accident and has thus far sold $22 billion of non-core assets (with a stated target of up to $30 billion in divestitures), leaving the balance sheet in excellent shape. Pro forma for these asset sales and after taking into account our estimate of BP's eventual oil spill related expenses, we expect BP will be able to earn nearly $20 billion per year from continuing operations. At less than 7x pro forma earnings, we purchased BP at a 25% discount to its peers."

Einhorn also feels that the company will be able to re-instate its dividend this year. His hedge fund is already up on its position as BP shares trade just north of $48 per share currently.

His new position is intriguing for a few reasons. First, this is his second subsequent oil-related purchase in 2010. As we've detailed previously, Einhorn bought Ensco (ESV), an offshore contract drilling company whose shares sold-off during the oil spill despite ESV having no involvement in the actual spill. We penned a previous investment analysis on ESV in our Hedge Fund Wisdom newsletter (free sample issue with ESV analysis here).

If anything, ESV was hurt by the near-term oil drilling moratorium that was enacted. Shares of ESV have appreciated significantly since Einhorn's original purchase and it is now one of Greenlight's top 5 positions.

Second, this investment is intriguing due to its timing. Many would argue that the time to buy BP was during the actual oil spill itself, as shares spiraled from $59 down to $27.50. After all, "buying when there's blood in the streets" is often a value investor's mantra. We already know of one such value investor that dove in head first, as Whitney Tilson's T2 Partners bought BP during the spill.

It's most likely that Einhorn waited to make his investment due to the large uncertainty surrounding BP, its financial condition, and the potential liability associated with the oil spill. For further analysis of the oil company, be sure to check out T2 Partners' presentation on BP. And for more recent commentary from David Einhorn, head to Greenlight Capital's year-end letter.

T2 Partners Year-End Letter: Discussing Longs & Shorts

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

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

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

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

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

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


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

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

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

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

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



You can download a .pdf copy here.

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

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

T2 Partners Bullish on Automatic Data Processing (ADP): Latest Investor Letter

In an industry typically shrouded in secrecy, Whitney Tilson's fund bucks the trend. Why? He recently said that, "we choose to share some of our ideas and analyses publicly not for marketing or ego reasons, but because it helps us make money for our investors, in three primary ways: a) when it is widely known that we have a position in a particular stock, we often hear from other investors who share valuable information or analyses; b) invariably, some people have the polar opposite view of a particular stock and, in sharing it with us, they can help us identify things we might have missed in our analysis; and c) when we share our ideas, it creates reciprocity and others share their best ideas with us."

Tilson and Glenn Tongue's hedge fund, T2 Partners, is out with their September letter to investors. T2 recently started a new position in Automatic Data Processing (ADP), citing high switching costs for customers, 20% operating margins, and solid management. He also points out that it is 4x bigger than its closest competitor. Bill Ackman's hedge fund Pershing Square started a new position in ADP during the second quarter as well, which we highlighted months ago in our newsletter Hedge Fund Wisdom.

Assessing the full situation, Tilson points out that ADP's growth has stalled and the stock isn't necessarily "cheap" as it trades at 17.4x trailing EPS. Tilson believes low interest rates and unemployment are weighing on the stock in the near-term but it is poised to outperform over the long haul. You can read the full thesis in Tilson's letter below.

We also see that T2 Partners remains short a basket of for-profit education stocks even after the recent declines. Tilson feels that these companies will face big challenges from new regulations, continued bad publicity, and a sharp cut in their long-term profit growth.

Over the months, we've detailed how the for-profit education space is a battleground amongst hedge funds. Richard Blum's hedge fund Blum Capital has been buying ITT Educational (ESI). Steve Eisman of FrontPoint Partners led the charge against these companies with his original presentation, "Subprime Goes to College." Tilson continues to share Eisman's view (for the time being at least).

Embedded below is T2 Partners' latest letter to investors where they detail the bull cases for Automatic Data Processing (ADP) and Iridium (IRDM):



You can download a .pdf copy here.

Secondly, we've also included a link to T2 Partners' presentation from the Value Investing Congress, entitled "Our View of the Market, An Update on the Housing Market, and Two Stock Ideas." The two investments they detail include BP (BP) and Liberty Acquisition/Grupo Prisa (LIA). You can download a .pdf copy here.

Finally, we've posted summaries of the various speaker presentations and you can view comprehensive notes from the Value Investing Congress here.

Whitney Tilson, Carlo Cannell, Alexander Roepers: Notes from Value Investing Congress

Continuing our coverage of day two of the Value Investing Congress, we have summaries of the presentations from Whitney Tilson & Glenn Tongue (T2 Partners), Carlo Cannell (Cannell Capital), as well as Alexander Roepers (Atlantic Investment Management).

If you missed it, we've posted a plethora of resources from the event, including:

- Presentations from John Burbank & Lee Ainslie
- Bill Ackman's Q&A session from the Congress
- Presentations from David Einhorn, Kyle Bass, & Mohnish Pabrai
- Summaries of speeches from fund managers Zeke Ashton, Guy Spier, & Michael Lowitt

Next, onto the last round of speakers at the Value Investing Congress:

Carlo Cannell ~ Cannell Capital

The fund manager's presentation was named after 'Megaloceros Giganteus,' or an Irish elk that became extinct. Cannell says that over a long enough timeline, all companies will die and his talk zeroed in on a company he believes to be on the verge of extinction. He is short Pitney Bowes (PBI), a company that he says has an obsolete business model. There has been a decline in mail demand and this is hurting the mail processing equipment company.

Cannell warns that it might not be an 'actionable' short at the moment. At the same time, he cautions that stubborn short sellers can be come extinct just as easily. Remember the old market adage? The market can stay irrational longer than you can stay solvent. This isn't the first fund manager we've seen with a negative stance on Pitney Bowes. In the past, we've seen that Matt Iorio's White Elm Capital has owned puts on PBI for numerous quarters.

Two companies that are on Cannell's watchlist as potential shorts are Buffalo Wild Wings (BWLD) and Texas Roadhouse (TXRH). You can view notes from a previous talk by Cannell here.


Whitney Tilson & Glenn Tongue ~ T2 Partners

Tilson and Tongue began their presentation focusing on the economy and their fund has been positioned conservatively given their tepid economic outlook. The T2 managers highlight that the market is likely to remain range-bound, trading sideways via oscillations in either direction that cancel each other out. Housing remains the biggest issue to the economy as prices still have further to fall and inventories need to be absorbed. As such, T2 Partners is short the homebuilders via the exchange traded fund XHB.

The hedge fund is still long BP (BP) as they purchased it back in the company's darkest hour as shares tanked due to the unfortunate oil spill. He jokingly said that he's thankful for Jim Cramer, who he has utilized as a contrarian indicator. Tilson thinks the stock is easily worth $50 (it currently trades around $41 per share, so 20% upside potential). Fears from the oil spill have been greatly overblown and T2 feels the company is still cheap and will reinstate the dividend at some point.

Regarding other portfolio positions, recall that Tilson has been short InterOil (IOC). We've also detailed T2 Partners' latest letter to investors for those interested.


Alexander Roepers ~ Atlantic Investment Management

Roepers typically runs a concentrated portfolio and focuses on mid-cap stocks. He likes predictably profitable companies with solid balance sheets and solid cashflows. Roepers will focus on companies with market caps of $1 billion to $20 billion with a holding period of typically 1-3 years.

He pitched Owens Illinois (OI), pointing to its very strong moat and increasing share in emerging markets and thinks it goes to $45 per share (currently trading around $27). Roepers labeled the company a growth business and points to their packaging business in particular. Hedge fund Viking Global had previously held a position in OI, but they sold completely out in the first quarter of this year.

He also mentioned positions in Xerox (XRX) which he views as an acquisition target and targets $18 per share as a fair valuation of the company. The manager also mentioned ITT (ITT). Lastly, Roepers also rattled off positions in Rheinmetall (RHMGY) in Germany, as well as Muraka and Creata Water.


That wraps up our series of notes from the event. You can scroll through our entire coverage of the Value Investing Congress by clicking here. Stay tuned because in the coming days we'll take in-depth looks at some of the investment ideas from select hedge fund managers. Don't miss out! Receive our free updates via email or free updates via RSS reader.

Bill Ackman's Pershing Square Bought BP (BP) Credit Default Swaps

Bill Ackman's hedge fund Pershing Square Capital Management released their second quarter letter to investors and courtesy of Dealbreaker we're going to take a look at a few of his latest portfolio moves. Pershing's main fund was up 3% for the year net of fees at the end of Q2. Keep in mind that Bill Ackman will be presenting at the upcoming Value Investing Congress next month in New York City as well, and you can receive a discount here before the event sells out to hear his next idea. In the mean time, let's see what he's been up to.

Firstly, Pershing sold completely out of Yum Brands! (YUM) as the stock approached their estimate of intrinsic value. Secondly, they re-added shares of Automatic Data Processing (ADP) as the stock dropped despite reporting strong results. The 'undervalued high quality large cap' theme has been prevalent in many hedge fund portfolios and Pershing is no different as they've acquired shares of Kraft (KFT) in quarters prior (see their Kraft thesis here). Of this theme Ackman writes, "The resulting investor pessimism has caused stocks - even those of large capitalization, dominant, economically resilient business franchises which are the focus of our investment strategy - to trade at substantial discounts to our estimates of business value."

New Investments

The most notable takeaway from Pershing's Q2 letter is their disclosure of two new positions: a position in BP (BP) credit default swaps (CDS) as well as a portion of the securitization of debt on the Peter Cooper Village/Stuyvesant Town. Regarding BP Ackman feels that "the Gulf disaster has (1) likely permanently impaired the ability of BP to operate effectively in the US, (2) the clean-up costs, penalties, and legal liabilities of the spill will continue to impair the company's credit for many years, and (3) there is a substantially greater probability than is reflected in the pricing of the CDS that current liability estimates that have been publicly promulgated materially underestimate the ultimate costs to BP."

In the past, Ackman and fellow hedge fund manager Whitney Tilson of T2 Partners have shared some of the same positions in their portfolios. Not this time. You'll recall that Tilson is long BP and we detailed his in-depth analysis of BP here. It's intriguing to see this dichotomy of opinion between the two managers who are normally in agreement. At first glance it appears that they are on different sides of the trade this time around.

However, if you drill down their respective theses, they aren't necessarily betting against each other. Tilson is betting that the spill cleanup costs are overstated and that BP would be able to stop the leak, sell assets to raise cash, and meet even the worst case scenario estimates of clean up costs. While he is a value investor, this is more of an event-driven play with a shorter timeframe.

Ackman, on the other hand, seems to be wagering against BP's long-term creditworthiness. Some of you may be wondering why Ackman didn't just short the stock and there are two possible reasons for that. Firstly, as just mentioned, he is betting against the creditworthiness of the company rather than the fundamentals of the business itself. Secondly, as detailed in our profile of Pershing Square, Ackman prefers to use credit default swaps for exposure on the short side of the portfolio.

Their latest positions come in addition to Pershing acquiring a recent Citigroup (C) stake and we previously covered why Ackman bought Citigroup as well. Check out Ackman's full commentary in Pershing Square's second quarter letter to investors embedded below:



You can download a .pdf copy here.

To learn more about Bill Ackman, he is the subject of Christine Richard's book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. For more great hedge fund manager commentary, check out the latest letter from Dan Loeb's Third Point as well.

Hedge Fund T2 Partners Presentation on Microsoft (MSFT), BP (BP) & Anheuser-Busch InBev (BUD)

If there's one overwhelming theme we've seen from hedge funds as of late, it would be the 'long high quality large caps' trade. Whitney Tilson and Glenn Tongue's hedge fund T2 Partners further verify this with their latest bullish presentation on Anheuser-Busch Inbev (BUD), Microsoft (MSFT), and BP (BP). These are some of the largest companies in the world and T2 sees value in their shares. While value is the underlying theme, they are bullish on each respective company for very different reasons.

T2 Partners recently outlined their rationale with this presentation at the annual Value Investing Seminar in Italy. Keep in mind that T2 and many prominent hedge funds will be presenting their latest picks in October at the Value Investing Congress (special discount here). Now, Tilson and Tongue start their most recent presentation with Anheuser-Busch InBev (BUD). They cite that the company is a very high quality business with pricing power and a best of breed management team. A result of the merger between InBev and Anheuser-Busch, the company has density in major markets with high margins and high returns. Additionally, T2 points out valuation, writing, "Pro forma for deleveraging and synergies, (it) trades for 9.3x 2012 free cash flow." The company has beat its 30% EBITDA margin goal handily and has cut costs.

On Anheuser-Busch InBev, T2 Partners says, "you can currently buy BUD with an entry FCF yield of 10% for a business that can probably grow at GDP + inflation for a long time, giving you a long term IRR of at least 15% without any multiple expansion." We've previously covered a separate and specific T2 Partners presentation on BUD worth checking out as well.

Secondly, Tilson and Tongue argue that Microsoft (MSFT) is undervalued. They write, "MSFT's closing price on 7/12/10: $24.83, so assuming $2.40/share of FY 2011 earnings (midpoint of analysts' estimates and our own), plus $4 share in cash, here are possible stock prices and returns (plus there's a 2.1% dividend): 10x multiple = $28 stock = 13% return. 12x multiple = $33 stock = 33% return. 15x multiple = $40 stock = $61% return." They highlight the company has $4.24 cash per share, shareholder friendly capital allocation (buybacks & dividend), as well as a new product cycle in tow (Microsoft Office, Windows 7, etc). T2 Partners says that the rumors of Microsoft's demise are greatly exaggerated.

Lastly, Whitney Tilson and Glenn Tongue shift their views to the oil spill and a potential opportunity with BP (BP). Assuming a worst case scenario where BP owes $70 billion in liability, T2 Partners feels the company can easily earn its way out of these liabilities as its current operating income is estimated to be $34 billion in 2010 (BP has the fourth highest revenues and profits of the Fortune 500). Given the past precedents of oil spills, T2 also cites previous incidents including the Ixtoc blowout in 1979, the Gulf War oil spill in 1991, and the Exxon Valdez spill in 1989 where the negative impact for oil companies involved was less than feared. Overall, T2 feels that BP's balance sheet, cash flow generation, and recent asset sales to Apache (among other strategies) will allow them to weather this storm. You can find hedge fund T2 Partners' in-depth analysis of BP here.

And embedded below is the hedge fund's full presentation on these three large cap companies:



You can download a .pdf copy here.

To hear more investment ideas from T2 Partners and other hedge funds, be sure to check out the upcoming Value Investing Congress (with a special discount here). We've been covering a lot of the latest investment ideas from hedge funds disclosed in their most recent investor letters. For more recent picks, you can see the rest of T2's portfolio here and you can head to Perry Capital's latest letter here.

Buy When There's Oil In The Water: Bullish Case for The St. Joe Company (JOE)

Below you'll find an in-depth presentation from Broyhill Asset Management on an intriguing way to play the Gulf oil spill from an investment standpoint. Hedge funds like Whitney Tilson's T2 Partners are buying oil giant BP (you can see their in-depth analysis of BP here). Others are buying drilling companies such as Transocean (RIG), Noble (NE), and Ensco (ESV). Broyhill, however, takes a slightly different approach. Their presentation "Buy When There's Oil In The Water" presents the bullish investment case for The St. Joe Company (JOE).

As you'll see in the presentation, the case for St. Joe starts with the fact that they own numerous real estate assets along the Gulf coast of Florida (assets that unfortunately could possibly be in danger from the oil spill). Christopher Pavese, Chief Investment Officer of Broyhill outlines St. Joe's competitive advantage in their near-zero cost of land. He writes, "Its massive scale and low-cost basis is impossible for other developers to replicate, making JOE the partner of choice for all development activity in Northwest Florida."

Broyhill is a Family Office that was started to manage the assets of Paul H. Broyhill and has since evolved into a multi-pronged investment firm. We've previously detailed commentary from Broyhill's Affinity hedge fund with their contrarian bet on long-term treasuries. Additionally, we've covered their ten reasons to buy bonds. And now below, we'll detail their hedge fund's latest investment idea.

Aside from its real estate assets, JOE has a pristine balance sheet with tons of cash and practically no interest-bearing debt, a much 'leaner' cost structure compared to prior years. A true investor often models and examines the worst case scenario for a given company. Broyhill has done just that, outlining a scenario where no one is really ever interested in JOE's land. In such a case, they estimate the stock is worth $15 (JOE currently trades above $25), assuming the land is sold for a paltry $2,000 an acre. To put this in context, consider that Leucadia recently paid $80,000 per acre in the same region.

The key for this company is monetizing their assets and the assumption that they will be able to do so. This play obviously requires patience on the investing end and Pavese highlights that St. Joe already has some near-term catalysts already lined up. However, as the oil spill nears St. Joe's properties, the stock has become more volatile. Broyhill argues that JOE's volatility leads to opportunity. Embedded below is the full in-depth presentation on The St. Joe Company (JOE) from Broyhill Asset Management:



You can download a .pdf copy here.

So while many other hedge funds and investment managers target oil companies as a proxy for oil spill plays, Broyhill has taken a roundabout approach. And, they aren't alone in this investment either. Bruce Berkowitz's Fairholme Fund has St. Joe as one of their largest positions and has for some time. So while Pavese fully acknowledges that JOE is a slow and boring story, he is confident this unfortunate oil spill has presented a fantastic opportunity for the long-term. For more from Broyhill's Affinity hedge fund, head to their contrarian bet on long-term treasuries as well as their ten reasons to buy bonds. Stay tuned tomorrow as we'll be covering their latest market commentary as well.

Hedge Fund T2 Partners: Updated Long & Short Positions, In-Depth Analysis of BP

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners recently released their June letter to investors. In it, we get an update on their performance but more notably, we see some of their long and short positions. Additionally, they've attached an in-depth analysis of BP plc (BP). As you know, we've previously outlined Tilson's reasons for buying BP. The extension included in the letter further elaborates on the analytical rationale behind owning shares of the oil spill giant.

Performance wise, T2 had a very impressive month of June, up 4.2% net of fees compared to the S&P 500 which was down 5.2%. T2 sits up 9.8% for the year net of fees, handily outperforming the S&P again. Since inception, T2 has returned 189.9% net of fees compared to only a 2.6% return for the index over the same timeframe.

Here are some of T2's current longs (in no particular order):

Berkshire Hathaway (BRK.A/B)
Iridium (IRDM)
Liberty Acquisition Corp warrants
BP plc (BP)
Winn Dixie (WINN)
Microsoft (MSFT)
Echostar (SATS)
dELIA*s (DLIA)
General Growth Properties (GGP)

Of their longs, we've noted numerous times how hedge funds are finding value in large cap names and Microsoft (MSFT) is the perfect example of this. While some argue they face tough challenges ahead, there's no denying its cheap valuation by historical metrics. For another value large cap play, we also highlight T2 Partners' position in Anheuser-Busch InBev (BUD) as we presented their analysis of BUD from the Value Investing Congress.

In terms of other longs, we first covered when Tilson bought BP and the basic gist of this play is that there's a reasonable chance the oil could stop flowing sooner than people expect and that clean-up costs will be less than imagined a year from now. In the letter below you can read his full assessment of the oil spill situation, company balance sheet, and more.

And here are some of the hedge fund's short positions that they've revealed:

Pacific Capital Bancorp (PCBC)
Homebuilders via the Homebuilder ETF (XHB)
For-profit education companies (no specific names mentioned, most likely a basket)
Barnes & Noble (BKS)
Boyd Gaming (BYD)
MBIA (MBI)
InterOil (IOC) puts

While we've known some of these stakes from when we previously looked at T2's short positions, the disclosure of their Pacific Capital Bancorp short is new. This ties into one-half of the long moneycenter/short regional bank trade that many hedge funds have on. Additionally, Boyd Gaming (BYD) is another new short we're seeing for the first time from Tilson and Tongue.

Embedded below is T2 Partners' June 2010 letter to investors:



You can download a .pdf copy here.

For more investment ideas from Tilson and Tongue, they'll be speaking at the upcoming Value Investing Congress in New York City in October along with many other prominent hedge fund managers including David Einhorn, Lee Ainslie, John Burbank and more. Market Folly readers can receive an exclusive discount to the event here.

Jim Rogers Sees Opportunity in Silver and Palladium

From time to time, we like to check in on investment guru Jim Rogers to catch up on his thoughts on the markets and global economy. We do so of course due to his past success with the Quantum Fund he previously ran with George Soros. Nowadays, Rogers invests his money under Rogers Holdings and he has some pretty staunch viewpoints. Rogers himself proclaims he is a poor market timer. So while he may be early on an investment theme, he often finds and rides macro trends. To some, his views seem repetitive. But you must keep in mind that he very frequently appears in the media and is seemingly asked the same questions over and over. The last time we checked in on Jim Rogers we saw that he was shorting market indices. From all of these interviews, one of his stances has become abundantly clear: he loves commodities and in particular, precious metals.

In his recent slew of interviews, Rogers has proclaimed that he is fond of gold and still owns it. However, he is not buying more nor is he selling. In the end, he actually thinks gold will be a bubble in the distant future. For some reason he tosses out the year 2019 as his estimate, and it seems he thinks gold's reign will last a decade or so. He thinks this bubble top is a ways off because governments have been debasing their currencies at a rapid rate. Historically, he points out, this has always led to higher prices for real assets and he thinks this time will be no different.

Speaking on the subject of gold, Rogers says that, "I know the old (gold) high, adjusted for inflation, is over a couple thousand dollars an ounce. I know it'll get over that in the next decade. It depends on how much they debase the currencies. It's all part of the same picture... most governments everywhere only know one thing and that's to print and spend money that they don't have. Whenever you do that, it debases currency, always has, and until I see some governments realize that they have to do something else, then I plan to own gold and other precious metals and other real assets."

This of course is not the first time we've detailed a prominent investor's fascination with gold. John Paulson's hedge fund Paulson & Co started a gold fund mainly to bet against the US dollar and the currency debasement that Rogers centers his thesis around. We've also seen John Burbank's hedge fund Passport Capital lay out the rationale for owning physical gold. Not to mention, David Einhorn's Greenlight Capital has owned physical gold for some time now. Inflation is a very legitimate future concern for some of the top minds in the investment industry. Rogers is no different.

His main rationale here stems from the fact that many long-term bull markets end in hysteria and bubbles. He doesn't like to buy things at all time highs and that's pretty much where gold is trading these days. As such, Rogers' interest has been piqued by other metals.

If he had to buy a metal right now, he said he would focus on depressed metals such as silver or palladium. Rogers points out that silver is 60-70% below its all-time high while palladium is around 50-60% below its all-time high. He already owns all four metals: gold, silver, palladium, and platinum. Throughout all his interviews, he was very adamant that he was not selling his gold, but he was not buying more either.

Shifting to Rogers' views on currencies, he is particularly fond of the renminbi. While it is not his favorite overall investment due to liquidity concerns, it is the long-term investment he is most certain of. Rogers mentioned this last week in talking with Bloomberg. And on CNBC that same week, Rogers reaffirmed that he is still long commodities and short stocks due to the withdrawal of government stimulus and his anticipation that central banks will keep the printing presses rolling. This is directly in line with what we saw from Rogers' portfolio in early May.

Lastly, we wanted to highlight that Rogers has been eyeing the events surrounding the oil spill as well. We've already detailed how Whitney Tilson's T2 Partners has bought BP, citing valuation and extreme circumstances. Rogers hasn't quite gone that far yet, but it has definitely caught his eye. On the topic Rogers ponders, "Is it the end of BP? I doubt it. Somewhere along the line I expect that I will buy BP. But I'm not buying it now - just watching to see what happens." In his experience, he notes that disasters are usually a great time to buy. On that same note, he also cautions that there's usually plenty of time to buy into the opportunity presented by the problem. For the time being, Rogers is more than comfortable to wait and watch the proverbial knife drop before jumping in the (oil coated) water.

Embedded below is one of his recent television interviews with CNN Money where he talks about various topics of interest (email readers will need to come to the site to view it):



That wraps up the latest views and portfolio positioning from investment guru Jim Rogers. For more of his thoughts and to learn from this investment guru, check out Rogers' books, Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market as well as A Gift to My Children: A Father's Lessons for Life and Investing.

If you enjoyed this post and want to follow the investments of some of the top market gurus and hedge fund managers out there, receive our free updates via email or via RSS reader.

Whitney Tilson Buys BP & Explains Why

Whitney Tilson of hedge fund T2 Partners recently appeared on CNBC and revealed he is now long BP (BP). This company of course has dominated headlines for the drastic oil spill in the Gulf of Mexico. More than anything, this investment is the definition of being greedy when others are fearful.

Currently, it's very apparent that the majority of investors are being fearful due to BP's potential liability associated with the oil spill. Not Tilson, though. He is zigging while the crowd zags and argues that this stock is simply "too cheap." While some are speculating about potential bankruptcy surrounding BP, he notes that this company earns north of $20 billion a year in profits and will be able to pay-off spill cleanup and any other potential liabilities.

BP is currently trading around 5.5x earnings and paying a 9% dividend yield. Being a value investor, Tilson obviously is not trying to make a quick trade here given the headline risk and instead is in it for the long haul. He fully acknowledges that headlines can (and probably will) continue to be negative, but he thinks it's just starting to get ridiculous. Tilson mentions that it is around a 4% position in their portfolio (rather than say 10%) because there always is the potential for an armageddon scenario where there are just years and years of problems.

In addition to Tilson's new stake in BP, we also previously learned that he is long Anheuser-Busch InBev (BUD). T2 revealed this investment idea at the Value Investing Congress and we posted up their BUD presentation for those interested. Tilson's investment in BP is an example of a stock presenting potentially extreme value through extenuating circumstances while his investment in BUD is more-so buying an attractively priced high quality business. This showcases the dynamic in value investing and stockpicking as no two investments are really ever identical.

Embedded below is Tilson's video interview where he outlines why he bought BP (Email readers will need to come to the site to view it):



For other activity from hedge fund T2 Partners, we also recently saw that Whitney Tilson and Glenn Tongue are still cautious on the markets and we received a portfolio update with their May letter to investors. Additionally, we note that they are still bearish on the housing market as well.

It definitely seems as if hedge fund managers are willing to share their new investment ideas as of late. Maybe it has something to do with the fact that hedge funds had a horrible May performance wise, but some would argue hedgies are always talking their book. Either way, no complaints as it's always refreshing to see new positions and hear a thesis. For more on hedge fund T2 Partners, be sure to check out some of their short positions as well.

Worst Year for Hedge Funds in a Long Time

Well, that's stating the fairly obvious, now isn't it? But, here are the cold hard facts. Hedge funds who we all adored for their dominating performance figures over the past few years are now struggling to stay positive on the year. It's no longer a question of "How much will we dominate this year?" But, instead, "Can we scrape by?"

Case in point: We've already seen the closure of Ospraie's $3 billion commodities fund after it lost 40% this year, which I wrote about here. This just goes to show that even those who had learned from some of the best can be brought to their knees. Dwight Anderson, manager of Ospraie, had learned from both Julian Robertson and Paul Tudor Jones, legends in their respective strategies.

Next, we've got word that even more typically dominant funds are struggling now more than ever. Ken Griffin's Citadel has seen their Kensington fund down 15% for the year, as of a week ago. This multistrat fund hasn't had a losing year since 1994. All this comes at a time when I noted that Citadel is trying to start a $1 billion macro fund. And, I can't blame them. Although many macro funds have had a rough summer, they are still up on the year. And, I think you'll see that macro funds will be the longer term winners as we continue to see an evolving financial landscape.

Stevie Cohen's SAC Capital is also down 3.5% this year. Well, at least his multistrat fund is. This is his fund's worst year since 1992.

I recently wrote that Boone Pickens' BP Capital has lost nearly $1 billion so far this year. I also wrote about Harbinger Capital being up 42% at one point earlier this year, only to find themselves up only 2% for the year. Then there's TPG-Axon, who hasn't had a losing year since 2005. They're down 18% year-to-date as of last week.

I could go on and on, but you get the picture. Take all the performance figures I've divulged above and compare them to my hedge fund performance update written at the beginning of September.

Hedge funds are struggling, 401k investors are struggling, and the economy is struggling. The financial landscape is changing and look for numerous hedge fund redemptions and possible liquidations to sprout up in the coming months. There has already been a massive outflow of cash from the hedge fund space as investors become nervous. I expect this trend to continue, and so do the hedge funds. After all, why else would they have set aside an estimated $600 billion in cash accounts to cover these outflows?

It's beyond obvious at this point, but only the strongest will survive.

BP Capital's 13F (Boone Pickens)

Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's HERE.

So, first up this week we've got BP Capital. With all the commotion surrounding energy these days, I thought it was only fitting that we begin with an energy focused hedge fund ran by none other than Boone Pickens. If you are unfamiliar with Pickens, he is an energy maverick and his fund returned 300% in 2005. He is a big advocate of Peak Oil Theory and runs an energy-centric hedge fund based in Dallas, Texas. Although he typically holds numerous positions in oil, he is also big on alternative energy (except ethanol) and has numerous holdings there as well. He most recently advocated a large natural gas position and has additionally made a big bet on wind energy. His most recent thoughts can be seen here from my recent post.

Now, let's get down to business. The following is BP Capital's current holdings as of March 31st 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

New Positions:(in no particular order)
Halliburton (HAL) 1,476,346 shares
McMoran Exploration (MMR) 1,017,151 shares
Sandridge Energy (SD) 1,025,621 shares
Transocean (RIG) 1,085, 365 shares
XTO Energy (XTO) 716,762 shares

Added to:
ABB Ltd (ABB) increased position by 2.7% (70,878 more shares)
Clean Energy Fuels (CLNE) increased position by 1% (3946 more shares. Note: This is also Pickens' company)
Dresser Rand (DRC) increased position by 2.7% (24,731 more shares)
Fluor (FLR) increased position by 2.7% (15,980 more shares)
Foster Wheeler (FWLT) increased position by 139% (422,788 more shares)
Greenbrier (GBX) increased position by 2.7% (15,183 more shares)
Interoil (IOC) increased position by 0.8% (7,652 more shares)
Jacobs Engineering (JEC) increased position by 2.7% (23,766 more shares)
KBR (KBR) increased position by 2.7% (16,353 more shares)
Occidental Petroleum (OXY) increased position by 2.7% (52,277 more shares)
Schlumberger (SLB) increased position by 16.6% (164,306 more shares)
Shaw Group (SGR) increased position by 2.7% (17,914 more shares)
Talisman (TLM) increased position by 2.7% (79,210 more shares)
Titanium Metals Corp (TIE) increased position by 2.7% (28,847 more shares)
Weatherford Intl (WFT) increased position by 41% (160,845 more shares)

Reduced Positions:
Chevron (CVX) decreased position by 55% (sold 529,063 shares)
Denbury Resources (DNR) decreased position by 7.2% (sold 238,679 shares)
Suncor (SU) decreased position by 31% (sold 559,812 shares)

Removed Positions:
Positions BP Capital sold out of completely
Anadarko Petroleum (APC)
Exxon Mobil (XOM)
Valero (VLO)

Positions with no change:
None

Top 10 holdings by % of portfolio:
1. RIG (top holding)
2. OXY
3. SU
4. SLB
5. DNR
6. FLR
7. ABB
8. JEC
9. HAL
10. TLM
---------------------------------------------------------

Breakdown: So, it appears that Boone Pickens is moving away from the integrated oil plays and into companies that do not have exposure to refining. He's cut his CVX position in half and gotten completely out of XOM and VLO. And, you can't blame him with Oil at current prices... refining margins just flat out suck here. I really like his move (back) into RIG. In his 13F prior to this one, he had sold out of RIG completely and I was very puzzled by that maneuver. But, good to see he's back in the name considering they are seeing very high high day rates. And, in fact, RIG is now BP's largest holding in the portfolio. And, he just picked it all up this past quarter. I wouldn't be too worried about him selling some SU seeing as he's probably just doing some profit taking as well as freeing up cash to put in more natural gas oriented plays. He's stated numerous times that he really likes the Canadian oil sands for their market positioning. He really beefed up his position in FWLT and it looks like he really likes infrastructure plays with his picks of FWLT, JEC, and FLR, with FLR being his top infrastructure holding. I definitely agree on FLR and FWLT, but I'm not entirely sold on JEC yet (time for more research). He also started a position in SD which is interesting because numerous other hedge funds also started a position in SD this past quarter (more on that in the posts to come). But, given his bullish stance on natural gas, this play makes perfect sense. So, there you have it, a glimpse inside Boone Pickens' mind and a peek inside his portfolio.

My personal favorites out of his portfolio: RIG, OXY, SU, FLR, FWLT, XTO
Most interesting move: His addition of SD, considering numerous other hedge funds added it too

Note: Of his positions, I'm long RIG, OXY, SU, FLR, FWLT, SD

Tune in tomorrow when I detail the changes within Lone Pine Capital's portfolio, ran by Steven Mandel (a protege of legendary investor Julian Robertson).

Hedge Fund Activity / 13F

(Just FYI: This post marks the first of a series I will be doing this week that details what the "smart money" has been up to lately.)

Four times a year, hedge funds & asset managers with > $100 million AUM (assets under management) are required to report to the SEC their holdings from the previous quarter. I check these 13F filings quarterly just to get a sense as to where these funds are putting their money sector wise. If you just sit down and do some simple number crunching between last quarter's 13F and this quarter's 13F, you can see exactly where these funds have been moving their money.

Now, these 13F's should be treated as a lagging indicator simply because the 13F's that were just released May 15th 2008 show the funds' holdings as of March 31st 2008. So, in the past month and a half, they could have completely changed their portfolio. But, at the same time, its easy to see which sectors they are flocking to.

I like to specifically follow value based hedge funds in the hope that they won't experience ridiculously high turnover and thus allowing me to track their sector rotations. Specifically, I follow the Tiger Cubs (otherwise known as the proteges of former Tiger Management legend Julian Robertson). Many of these former proteges/right hand men have started their own funds and here are the ones I've been following:

- Blue Ridge Capital (John Griffin)
- Lone Pine Capital (Steve Mandel)
- Maverick Capital (Lee Ainslie)
- Viking Global (Andreas Halvorsen)

Additionally, I also like to follow the Commodities Corporation "offspring" which typically employ a global macro strategy.

- Tudor Investment Corp (Paul Tudor Jones)
- Moore Capital (Louis Bacon)
- Caxton Associates (Bruce Kovner)

So, I follow a core of value funds in depth and then I also follow a core of global macro funds in depth. Over the next week, I will be going into detail as to what those specific funds were up to this past quarter. Additionally, I like to follow other "whales" and funds that are not necessarily value based, but are still top performers on Wall Street. I won't be going into detail on some of these names, but I will provide some very useful links that give a broad overview of what some of these whales have been buying/selling. Because, after all, you've got to at least keep tabs on what these guys are doing:

- Warren Buffett (obviously)
- Carl Icahn (rabblerousing at its best)
- RBS Partners (Eddie Lampert)

Then, of course, there are some just straight up beastly funds which you have to keep an eye on due to their awesome returns over the years:

- Atticus Capital (Timothy Barakett)
- BP Capital (Boone Pickens)
- Greenlight Capital (David Einhorn)
- Paulson & Co (John Paulson)
- D.E. Shaw & Co (David E. Shaw)
- Jana Partners (Barry Rosenstein)

And, lastly, a few deep value & activist funds.

- Third Point (Daniel Loeb)
- Pershing Square (Bill Ackman)
- Okumus Capital (Ahmet Okumus)
- T2 Partners (Whitney Tilson)
- Tontine Partners (Jeffrey Gendell)

So, over the coming week I'll touch on some important position moves some of these funds/whales have made (new positions, removed positions, etc). And, specifically, I'll be looking in depth at some of my favorite funds on a quarter by quarter comparison. Here are the links to my in-depth analyses of said funds.

- Blue Ridge Capital
- Lone Pine Capital
- Maverick Capital
- BP Capital
- Atticus Capital