Julian Robertson Interview: FANG Stocks Not Frothy At All

Tiger Management founder Julian Robertson was recently interviewed by CNBC.  Here's a summary and the full video below:

- When asked about Paul Tudor Jones' recent comments about stocks heading higher into year-end, Robertson said that, "I think there's a very good chance of that happening (in the next year) and I'm positioned accordingly."

-  He thinks it's possible that interest rates go up so high so fast that the Fed would have to ease up a bit.  But doesn't think rates will go 'wildly' up

- Says the President has done a reasonably good job, but could do with a dose of humility

- Tax cuts have helped corporate earnings but also the earnings of the middle class tremendously

- Feels a slowdown is at least 6 months and 'hopefully' 2 years away

- Tech stocks: he doesn't think FANG stocks are frothy at all, especially relative to the rest of the market. This is one area where he feels he differs in opinion from a lot of market participants.  Adds Microsoft (MSFT) to that bunch as these stocks have growth rates similar to their multiples

-  He likes the management at many of these companies, Facebook etc

-  Air Canada at 3x next year's cashflow is not an expensive stock and is 'beautifully run'.  Also likes Ryanair in Europe.  Doesn't really have any airline favorites in the US right now

-  Loves the banks, thinks they're very reasonably priced in relation to earnings.  Huge cashflow yields next year and thereafter.  Thinks they're in terrific shape, likes JPMorgan (JPM) and Bank of America (BAC)

-  Would tell grandchildren to own FB, BAC, JPM, probably Citigroup (C), which is 'reasonably priced'

Embedded below is the video of Julian Robertson's CNBC interview:

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Notes From Great Investors Best Ideas Conference (GIBI) Dallas 2017: Ackman, Einhorn & More

The 11th annual Great Investors Best Ideas (GIBI) Dallas Investment Symposium just took place where managers shared investment ideas to benefit The Michael J. Fox Foundation for Parkinson's Research and Vickery Meadow Youth Development Foundation.  Below are some brief notes on the event:


Notes From GIBI Dallas Conference 2017

David Einhorn, Greenlight Capital

Still owns a huge position in General Motors (GM) but has been trimming it since it's grown too large (risk management, position sizing, etc).  Still his largest position by a longshot though.  Still thinks it's very cheap and points to an opportunity for a new shareholder base to get into shares.  Likes they've gotten rid of its riskiest international business and is investing in autonomous cars and electric vehicles: the future.

He also likes Tempur Sealy (TPX).  Thinks estimates are way too low (notes that management's incentives are way higher).  The company had a dispute with Mattress Firm and stopped selling its mattresses there.  Despite that, customers still actively sought out the TempurPedic brand, so the co is replacing its lost Mattress Firm sales elsewhere at higher margins.  Thinks there's also a reasonable chance MF comes back to them since MF has lost sales.

Einhorn said that his 'bubble basket' of shorts in highflying tech stocks like Amazon and Tesla are valued like profits don't matter ... ever.  He says eventually people will wake up and profits will matter and their stocks will crater.  He also pointed to somewhat of a cult following status that is attached to Tesla's stock with all the hype that Elon Musk continuously builds with various projects.  There's around 30 stocks in Einhorn's bubble basket.   He noted he owns a Tesla, but also points out that the company probably lost $20-30k selling it.  Says company hasn't figured out how to make cars profitable on a unit basis.  You can also read Greenlight Capital's Q2 letter here.


Bill Ackman, Pershing Square Capital

Pitched his newest long: Automatic Data Processing (ADP).  Has an activist position.  Thinks it's a quality business: simple, not capital intensive, secular tailwinds (sees lots of growth ahead).  Automating employees.  Ackman thinks the stock's a double.  We've posted Ackman's presentation on ADP previously.

Also mentioned the GSEs he's involved with: Fannie Mae & Freddie Mac.  Still owns and thinks there's huge upside there.  He originally pitched these plays three years ago at the same conference.  Thinks they will eventually trade multiples higher of where they are now.

He's still short Herbalife (HLF) and has lost millions on the bet as the stocks' up around 40% from his average short price.  Said that of the risk factors considered for the position, Carl Icahn coming in and buying 20+% of the company wasn't one he considered.

Noted he still owns Howard Hughes (HHC) and while he doesn't see any immediate catalysts, thinks it's a long-term play as a high quality business.

Says average investor can be plenty concentrated with 10-15 holdings.  Biggest mistake of his career?  Not selling when new information emerged that didn't jive with his investment thesis.  You can read Pershing Square's Q2 letter here.



Tom Russo. Gardner Russo Gardner

Spoke about global brands and various companies still controlled by the founding families.  His best idea was the company hit with a scandal and PR crisis: Wells Fargo (WFC).  Previously he had noted how his WFC stake has remain unchanged (around 6% of his assets) and that he thought the company simply became too fixated singly on one variable (cross-selling) which lead to a bunch of accounts being opened in customers names.  The company now suffers from poor optics but on a risk level, direct financial harm has been modest and he has faith in the legal process.



Andrew Wellington, Lyrical Asset Management

A couple of picks:  Flex Ltd (FLEX), co is seeing double digit growth in its bottom line and 50% of FCF going to shareholders.  Trading around 12x earnings.

Affiliated Managers Group (AMG): asset management play, owns equity stakes in boutique management firms.  Says they own really good managers.  Trading around 12x NTM earnings.



Van Hoisington, Wasatch-Hoisington US Treasury Fund

He concluded that we're heading to a recession as the Fed has restrictive policies already in effect and money and credit are slowing noticeably.  Structural impediments to growth are over-indebtedness globally as well as adverse demographics.  Thinks rates will stay lower. 



Jeanie Wyatt, South Texas Money Management

A few ideas: Citigroup (C) as a value play.  Thinks it could re-rate from almost 1x book value to closer to 1.4x.  Since the crisis the company has a better situation and less subprime.

KAR Auction Services (KAR):  notes 20% EPS growth, end markets that are accelerating as well.  Trading just over 22x next year's earnings but with a big opportunity ahead as various leases will be coming to term.

Electronic Arts (EA): video game stock that's benefited from going over the top (OTT) as it leads to higher margins than the typical video game distribution model of physical games, etc.  Accelerating sales growth.  Also sees new potential upside in e-sports. 

Vodafone (VOD): Stock has traded sideways but the company has improved in end markets.  Thinks it offers good downside protection as sales growth has accelerated.


For more stock picks from recent investment conferences, we posted up notes from the Sohn San Francisco Conference yesterday.

Bill Miller Thinks We're in a Secular Bull Market, Talks Stocks He Likes

Value investor Bill Miller of LMM Investments appeared on CNBC today and thinks we're in a secular bull market that began in March 2009.

"Bonds are unattractive in my view.  I believe we hit a double bottom in bonds in the summertime... 35 year bull market in bonds is over."

"As long as stocks yield more than bonds, stocks are attractive."

Miller is fully invested and says, "Cash earns zero, why do I want something that earns zero?"

He likes One Main Financial (OMF), bought in the spring, still thinks it's 'crazy cheap.'  Thinks smaller financials are attractive, mentioned MGIC (MTG) and Radian (RDN), mortgage insurers. 

Miller also likes big financials as well: Bank of America (BAC), Citigroup (C), JPMorgan (JPM).  Value investor Rich Pzena also likes financials, as he mentioned in his interview last week.

Bill Miller has owned Amazon (AMZN) since the IPO and still owns it today.  He says that was one of the best decisions he's ever made, and one of the worst has been selling any shares of it.  It's his largest position and says people have misunderstood AMZN's valuation from the beginning.  "Amazon's total addressable market is just so much bigger than any other company on earth."

He also talked about Twitter (TWTR), saying he sold half of his call options when it was in the $20s, and thinks it's a unique asset as a 'network of interests.'  He thinks they need a fulltime CEO and suggested they could perhaps switch to a paid monthly platform.  "We own Twitter because of the optionality."  He think it has a floor of $15-16.

Miller also owns various homebuilders such as Lennar (LEN) and TriPointe (TPH).  Feels builders will grow double-digits for the next few years.

On airlines, Miller still owns them and says Delta (DAL) is trading at a 15% free cash flow yield and will generate $5 billion in free cash and return 75% of that to shareholders.  He likes United (UAL) with more upside as the margins are depressed and they've got new management there.

Miller also commented on former hedge fund hotel Valeant Pharmaceuticals (VRX):  "It's probably the most toxic stock in the overall market.  It's blown a hole in Ackman's portfolio, it cost Bob Goldfarb, one of the best investors in our generation his job.  Our cost is from $20-35, we just bought more last week." 

He says they have 2 issues: the legacy issue of transitioning new leadership and then the debt load.  He thinks it doubles in 3 years as the company has a lot of cashflow and will look to sell non-core assets.

He also talked about Netflix (NFLX), noting it's an incredible company and he's owned it twice before, but thinks it's expensive now.  Also thinks Tesla (TSLA) is expensive and most energy plays are as well, especially the integrated players.

For more from prominent investors, check out David Tepper's recent interview, as well as Keith Meister's thesis on YUM China. 

Rich Pzena Likes Banks, Hilton, Seagate

Rich Pzena of Pzena Investment Management appeared on CNBC yesterday and said the market has divided into 2 groups: those that are in sync with the 'lower for longer' philosophy and those aren't cheap stocks, and those that are out of sync like financials/energy/materials that are selling for attractive valuations.

"Any stable, low volatility cash flowing stock" is basically overpriced he feels.

He argued financials were intriguing: "If interest rates go up, you make a fortune, but if they don't you make 10% a year." These companies are paying out their earnings.  He owns Citigroup (C) and Bank of America (BAC), among others.

On the market in general, he says that, "The steady decline in the 10-year is what's caused this whole market situation. And now, maybe it's bottoming."

He thinks interest rates will rise this year and then will go gradually higher.  He thinks his stocks are positioned well to weather downturns in the market or rising rates.

"As this interest rate bubble ends, I think we'll see a re-emergence of active management.  There's lot of interesting opportunities that's not in touch with where the money has flowed."

Pzena also preached what he thinks is instrumental to success:  "Volatility is the opportunity for every real investor.  What we do for a living is exploit other people's fear of volatility to be able to buy stocks at a low price.  Volatility has nothing to do with risk.  Volatility is just stuff going up and down.  And risk is losing money."


Pzena's New Pick: Hilton (HLT)

Pzena has also bought Hilton (HLT) and says that apartment REITs sell for twice as much as lodging REITs.  Hilton is splitting into 3 companies by year-end: a fee based management co, a lodging REIT, and a timeshare business.

"The company's depressed because it's in lodging and people are fearful that we're near the end of the upcycle in lodging."

He feels that it's not a spectacular value like the banks are, but for what it is (a leading franchise) it looks good. He notes HLT has 20% share of all hotel rooms under construction.

He thinks the spin-off in the near-term leads to 20% upside.  Post-spin, he hopes the management company would get a higher multiple than the REIT.  But he thinks that may take time to play out as the cashflow evolves.


On Seagate (STX)

This is one of Pzena's larger positions.  Seagate is in the middle of correcting the overcapacity it had.   They've had strong volumes on the enterprise side and he says that's the whole story:  "It's a replacement of storage in the cloud rather than in the device."


For more from prominent investors, head to David Tepper's recent interview, as well as Keith Meister's thesis on YUM and Barry Rosenstein's thoughts on the market.

Lee Cooperman on Wall Street Week: Market Not Cheap, But Not Priced To Perfection Either

Anthony Scaramucci and Gary Kaminsky's Wall Street Week recently interviewed Omega Advisors' Lee Cooperman.  He manages around $9.5 billion nowadays.


On the current stock market, Cooperman says, "It's not cheap, but it's not priced to perfection."

He also addressed the potential looming interest rate hikes by noting that historically, the market is higher one year after the first rate hike.  He says you only have to start to worry once rates get high enough that they start to compete with stock market returns.

He noted, "There's no question that every asset has benefited by our interest rate policy.  Having said that, a bubble is not in the stock market... if there's a bubble, it's in the bond market."  This echoes what Carl Icahn said on his Wall Street Week appearance as well.

Two specific stocks Cooperman commented on were Chimera (CIM) as well as Citigroup (C).

He talked about how he first looks at the market to discern whether it's overvalued or undervalued, and then he drills down to specific companies to see where some value might be.  He's always looking for "more growth at a lower multiple" and likes to hunt for mispricings in the market.

Embedded below is the video of Lee Cooperman's interview on Wall Street Week:



Be sure to check out other recent fund manager appearances, such as Jim Chanoss interview on Wall Street Week.

SALT Conference Best Ideas Panel: Chanos, Bass, Burbank, Cooperman, Karsch

At the Skybridge Alternatives (SALT) Conference in Las Vegas, the best ideas panel featured top hedge fund managers giving their top stock picks.  Here's a summary:


SALT Conference Best Ideas Panel: Chanos, Bass, Burbank, Cooperman, Karsch

Jim Chanos (Kynikos Associates):  Short oil integrators.  Specifically, short Royal Dutch Shell (RDS), doesn't like the merger with BG.  Short Chevron (CVX) as well due to their liquefied natural gas (LNG) challenges.  He also summed up Brazil's Petrobras (PBR) by saying they're "lying, cheating and stealing."  Also check out Chanos' SALT interview we posted earlier.


Kyle Bass (Hayman Capita): Long Perrigo (PRGO).  Doesn't think they get bought out by Mylan, but thinks someone else acquires them.  "We're short enough pharma."  Bass' separate new fund has been challenging pharma patents and says the industry is ridiculous as prices of drugs have spiraled out of control.  He gave the example of Mylan's (MYL) epipen drug specifically.  Says 13% of the company's revenue comes from this drug (which came off patent back in the 1950's).


John Burbank (Passport Capital): Long NCB AB, a Saudi Arabian banking play.  "The banking giant you've never heard of in the country you're too scared to invest in."  He says the vast majority of deposits don't pay interest due to Sharia Law so they'll be in a good position when rates rise.  Harps on the fact that outsiders are going to be able to invest in Saudi and by 2017 90% of investors will own some part.  "All the risks are already known in Saudi."  This isn't a new theme from him as Burbank has pitched Saudi investments in recent years.


Lee Cooperman (Omega Advisors): As he has been for a while now, he again advised reducing fixed income exposure.  He also said to go short on any rally if you're adventurous. His stock picks were the same as his Sohn Conference picks: ACT, AER, C, DOW, GM, GOOGL, PCLN.


Michael Karsch (Hunter Peak Capital): Long NOS SGPS, a Portuguese cable/wireless provider.  Biggest cable play and #3 wireless provider in the country, a hidden gem.


For more from the SALT conference, check out Dan Loeb's talk.

Lee Cooperman's Value Investing Congress Presentation: Are Equities Still the Best House in the Neighborhood?

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Lee Cooperman of Omega Advisors who presented: Are equities still the best house in the financial asset neighborhood?


Lee Cooperman's Value Investing Congress Presentation

• Market is fully / fairly valued. There is time and price left in us equity bull market and a respectable  S&P return expected in 12-18 months. Repeated the caveat that a geopolitical event could upend this prediction

• “Bear markets are born in despair, grow on skepticism, mature on optimism, die on euphoria.” ‘08/’09 was deep pessimism, have seen skepticism lately but we are near the end of that  now. Sees few signs of euphoria

• Nearly all us fixed income securities w/ exception of structured credit are uninteresting and   unattractive. This includes treasuries, investment grade corporates, HY bonds and soverign debt

• Equity markets in Europe and Japan should deliver respectable returns over coming year, could   outperform us as they are further behind in business cycle. Japanese valuations are attractive   because they have a comparable dividend yield but sell at 13.6x P/E vs. 16.8x P/E in US

• Dollar should be a strong currency over coming year

• Looking at average cycles:
o Bear market of ‘09 was 2x the average bear market, down -57% vs. -26% average. Also lasted 17 months vs. 13 month average
o Recession duration also prolonged and deeper than average. The average recession is characterized by -2% GDP and lasts 10 months.  In the '09 recession, GDP declined -4.3% and lasted 18 months
o Average recovery lasts 60 months and we are on slight overtime at 63 months today. 
o Market peaks about 7 months prior to economic peak. Thinks we don't have recession in 2015 so doesn't see a market peak today
o Cooperman thinks this recovery has the potential to exceed the average because so many companies were operating below potential

• Reason for caution:
o Seeing a lot of capitulation from the permabears, now hearing 3,000 S&P predictions from holdouts.  People waking up and getting bullish now are making a mistake
o Getting a little nervous that so many people who couldn’t see the positive outlook a few years ago now see such good opportunity
o Reiterated geopolitical risk multiple times
o Very concerned about income disparity in the economy. 75mm youth around the world are unemployed.  In the '40s an average factory worker made 1/30th of a CEO, now 1/900th
o Next crisis will be in public sector fundings. US government has $17tn debt with an average maturity < 4 years.  Meanwhile corporates have high liquidity and the banking sector is so highly regulated these days that a crisis probably won't come from them
o Another risk: recession/deflation in Eurozone or US
o Stocks also aren't really cheap – showed Buffett’s favorite stock valuation chart

• Regarding rising rates:  o If Fed doesn't raise rates, we have a problem in the stock market. If cash belongs at 0% and govt belongs at 4%, you shouldn't be making 15% in the stock market.  Rising rates should be indicative of an improving economy
o 1958 was the year of yield reversal when equities started yielding less in dividend yield compared to treasuries.  Now over 25% of S&P 500 non-financials yield more than 10yr note
o Relative to alternatives, equities still better. Fixed incomes just not attractive


Longs:  

• GARP: Actavis (ACT), Citigroup (C), Thermo Fisher (TMO)
• Income growth: Atlas (ATLS), Gaming & Leisure Properties (GLPI), KKR (KKR), Nordic American Offshore (NAO) 
• Asset restructuring: QEP Resources (QEP), Supervalu (SVU)
• High risk/high return: Altisource Portfolio Solutions (ASPS), Louis XIII (577 Hk), Monitise (MONLLN), Sandridge Energy (SD).

Cooperman's pick of ASPS was analyzed in the May issue of our Hedge Fund Wisdom newsletter if you want to play catch up on the name quickly.



Be sure to check out the rest of the Value Investing Congress presentations here.

Lee Cooperman's Favorite Stock Picks at Delivering Alpha Conference

At CNBC and Institutional Investor's Delivering Alpha conference today, Omega Advisors' Lee Cooperman shared his favorite stock picks.

He likes Actavis (ACT), a tax inversion play, Citigroup (C), a good buy he says because the economy is healing with loan demand and one that could narrow the discount to book value over time, as well as Gaming and Leisure Properties (GLPI) and Nordic American Offshore (NAO).

Other plays he likes include: QEP Resources (QEP), Supervalu (SVU), Louis XIII (577 HK), and Monitise (MONI.LN), the mobile payments play he's pitched before.

Lastly, he also mentioned Thermo Fisher Scientific (TMO), KKR (KKR) and Sandridge Energy (SD).

Cooperman also noted that the last time the Fed raised rates was in 2006 and around 25% of fund managers weren't really around to experience that.

He also joked that the last time he was bearish was during his Bar Mitzvah.

One quote that stood out from him was that, "if you buy something that's out of favor, things seem to happen to make you right."


Lee Cooperman will be presenting new investment ideas at the upcoming Value Investing Congress in a few months and readers can receive a discount to the event by registering here and using discount code: MARKETFOLLY

David Tepper Says Market Isn't a Bubble: His Thoughts on Valuation, Tapering, Airlines & More

After the Robin Hood Investors Conference last week, Appaloosa Management founder David Tepper sat down with Bloomberg TV to talk about the markets.


On market valuation: He does not think we're in a bubble now as he compared P/E multiples over the last 5 years to the 5-year period running up to the 2000 bubble.  Stocks now have seen little change in multiples, while stocks back then saw huge multiple expansion.

On airlines:  "Our big play versus the market is the airlines.  We're the biggest holder of many of these airlines." We flagged this big bet for readers of our Hedge Fund Wisdom newsletter over a year ago.  See what else Tepper is betting on by subscribing (a brand new issue was just released last week).

On his 2014 investing approach: "We'll probably stay long.  We recently put on a treasury short, to hedge ourselves against the equity markets.  Little bit scared of tapering... higher rates... though rates won't go that high."

On to be worried about: "I would be worried if I was a long/short guy and not long enough, that's what I'd be worried about.  But I'm not worried, because I am long.  But if I'm a L/S guy who can only go 60% long ... the biggest risk for the market is you'll have multiple expansion, higher growth, 10% earnings growth next year, and you'll have another year of 20-30% (performance)."

On J.C. Penney (JCP): "It was a tiny position... a trade and we're done."

On Twitter (TWTR):  They would have held Twitter longer, but they had a price target in the $40's and so when the stock hit that in the first days of trading, he exited.  "It's a discipline."

On Citigroup (C):  "Citi still has some pretty good upside, we think it can make 7 bucks a share."

On his performance this year:  "I think gross we're in the 40's (%)."

On tapering:  He does think it's time to start tapering. He also said: "There can be a short-term negative reaction.  But if you're tapering, it's because there's stronger underlying US growth.  And if there's growth, there's going to be higher P/E multiples and the market should be higher.  If the market goes down, that's great, it'll be one more opportunity that people will be come and buy."

On what a lower Japanese Yen means: "It means higher P/E multiples in Japanese companies, straight out.  That's the way it works, because they're such exporters. So when you have a weaker yen, you have higher earnings."


Embedded below is the video of Tepper's Bloomberg TV appearance:



For more on the Appaloosa manager, head to Tepper's other recent interview where he said he thinks the market could see an 18-20x multiple.

David Tepper Still Bullish on Markets, Long Japan: Today's Interview

David Tepper appeared on Squawk Box this morning on CNBC.  The once elusive Appaloosa Management hedge fund founder has now become somewhat of a sporadically recurring guest, each time popping in update his degree of bullishness.


Reasons For Tepper's Bullishness

He originally came on air in September 2010 and inspired the 'Tepper rally' in markets.  The market is up almost 45% since Tepper's original bullish call and he said "sure, I'm definitely still bullish."  He cited improvements in housing and autos as great reasons to be bullish in the US and also pointed to central banks around the globe that are easing.  We highlighted Tepper's recent media appearance in January when he said to be long equities.

While many in the market are worried about the Federal Reserve tapering, Tepper shows how the deficit should be shrinking in the next six months and notes how there's $400 billion that can either go into the economy or stocks.  "If we don't taper back, we're going to get into this hyperdrive market."

He went on to say, "There better be a true taper or else you might be back into the last half of 1999.  So like guys that are short, they better have a shovel to get themselves out of the grave."

As far as potential risks go, Tepper says you always have to consider potential problems arising in the Middle East that could cause a 5% correction or so, but he doesn't see that coming and he also points that North Korea has settled down a little bit. 

In the end though, Tepper summarizes his thoughts by saying it feels like we're in an early stage economy.


Tepper on the Equity Risk Premium

Tepper highlights how "we're at one of the highs in equity risk premium in history" and that "when the equity risk premium is high, historically you get good returns after that.  A chart he pulled up shows that the highest levels were in 1975, 1982 and now.

He also cited how there's a low 13-handle for the S&P on next year's earnings. 

When asked where specifically he's bullish "I think every place is the place to be in the stock markets of the world.  I think you've taken out the tail risk, the disaster case.  That doesn't mean you won't potentially have riots in Europe."


Appaloosa Long Japan

Appaloosa is long Japan and has been long pretty much since the beginning of this year, Tepper said.  They commented on how Dan Loeb of Third Point has approached Sony (SNE) about restructuring as well.  Tepper noted that, "even though that market's moved a lot, you can still have a lot left in there."


Other Appaloosa Positioning

Tepper said, "It's one of those times where the indexes really are cheap ... My biggest position is Citi (C), you'll see it when my 13F comes out, it's still my biggest position.  We don't own commodities, however if we still see a strong economy, as world growth picks up, commodities will pick up in 2014.  General manufacturing is good, tech is cheap, but you have to be careful because of obsolescence" (so you have to look at individual names there).

He also said they still own Apple (AAPL), though they cut their stake a little bit at the beginning of the year around $500 or so.  They bought just a little bit below $400, and he looks at it as part of his tech basket.  Tepper feels the company either needs to come out with innovative new products, or transition to an evolutionary company where they make cheaper phones, bigger screens, and promote the ecosystem and grow that way.  He says the problem is they haven't done either lately.


Embedded below is the video of David Tepper's interview:

Video 1


Video 2


Tepper was listed as the highest paid hedge fund manager of 2012.

Lee Cooperman at the Skybridge Alternatives Conference (SALT 2013): Stockpicks & Market Thoughts

We wanted to highlight some notes from the Skybridge Alternative Conference, a.k.a. SALT 2013 taking place in Vegas this week.  Lee Cooperman of Omega Advisors gave his thoughts on the market and some of his holdings.


Market Thoughts From Cooperman

Cooperman says the market might be a little ahead of itself, the economy is limping along.  He doesn't see a reason for the market to decline a lot and says the only two ways that would happen is 1. a recession and 2. the market getting too frothy and the Fed removing quantitative easing.

The Omega Advisors man argued that the economic cycle could be longer than usual and also noted that many investors have de-risked since the financial crisis.  That said, he feels the market is ahead of the fundamentals.


Cooperman's Stock Picks

When asked where he would put new money to work today, he said he'd look to add to existing positions in his portfolio and singled out Monitise in the UK.  We highlighted Cooperman's Monitise stake before as it's a mobile wallet platform.

He also revealed he's been buying an engineering and construction firm Technip, involved in LNG platforms and after exiting Apple earlier, he's dipped back in around the low $400's in a "small size" position.

The Omega founder was asked about housing plays and noted he's missed the homebuilder trade, but has exposure via proxies like Ocwen Financial (OCN) and Altisource Portfolio Solutions (ASPS).  This week at the Ira Sohn Conference, Steve Eisman pitched OCN as a long.

Cooperman also touched on some other of his holdings that are trading below book value that he thinks are attractive:  American International Group (AIG), MetLife (MET), and Citigroup (C).

Omega also owns Facebook (FB) and they think people are underestimating the mobility opportunity and can achieve a much higher multiple.

At the SALT Conference, Cooperman was on the best ideas panel as well and said he likes Express Scripts (ESRX), the pharmacy benefit management company and Transocean (RIG), the deepwater driller.

Embedded below is a clip of Cooperman on CNBC from the SALT conference:



Lee Cooperman was named as one of the top 10 highest paid hedge fund managers of 2012.

Whitney Tilson's Kase Capital Q1 Letter: Pitch on Deckers, Sears Hometown & Outlet Stores

The hedge fund duo of Whitney Tilson and Glenn Tongue split up last year and now Tilson is managing his Kase Capital solo.  He just sent out his first quarter letter to investors where he outlines two of his new investments: Deckers (DECK) and Sears Hometown & Outlet Stores (SHOS), which you can read in the letter below.

Kase Capital's Top Holdings

In Kase Capital's letter, Tilson also lists his largest positions:

1. AIG (AIG)
2. Berkshire Hathaway (BRK.A)
3. Howard Hughes (HHC)
4. Deckers (DECK)
5. Citigroup (C)
6. Goldman Sachs (GS)
7. Netflix (NFLX)
8. Canadian Pacific (CP)
9. dELiA*s (DLIA)
10. Iridium (IRDM)
11. Grupo Prisa (B Shares)
12. Sears Hometown & Outlet (SHOS)
13. Spark Networks (LOV)


Tilson's Shorts & Exposure Levels

Tilson also reiterated a few stocks that he's short: InterOil (IOC), K-12 (LRN), and Nokia (NOK).  He's also holding a large cash balance, waiting for better opportunities to deploy capital.  His equity exposure comes in at 66% long and 22% short currently.


Embedded below is Whitney Tilson's Kase Capital first quarter letter to investors for 2013:

What We're Reading ~ Analytical Links 2/6/13

Continuing our new linkfest format, we'll feature analytical links on Wednesdays(below) and hedge fund news/updates on Fridays.

Analytical Links

Cash is a bad habit most investors need to kick [Abnormal Returns]

Is the secular bear market coming to an end? [The Big Picture]

On investment style agnosticism [Reformed Broker]

"Where does the money come from?" [Dealbreaker]

5 ways to be the best investor you can be [Marketwatch]

US private sector deleveraging: where are we? [The Big Picture]

Amazon, Apple and the beauty of low margins [Eugene Wei]

The Amazon dilemma [MicroFundy]

Understanding Apple requires an analysis of fundamentals and psychology [II]

2 things about high yield bonds investors must understand today [CFA Institute]

What's inside America's banks? [The Atlantic]

The importance of equity buybacks [BCA Research]

Equity allocations rise to highest level since July 2011 [AAII]

Mortgage crisis lingers on at Citigroup and Bank of America [Dealbook]

A profile on Mars Incorporated [Fortune]

Youngest American woman billionaire found with In-N-Out [Bloomberg]

David Tepper Says Be Long Equities

Continuing his round of rare recent media appearances, Appaloosa Management's David Tepper was on Bloomberg today telling people "to be long equities" as he's bullish.  Last month we highlighted his other interview where he said there's a lot of upside in equities,


Bullish on Equities


Valuation is part of the reasoning for his bullish call on equities as a whole: "If you look at the markets, they are trading at a really low multiple. 13 handle this year, 11 handle next year on the S&P."

Additionally, he simply points to the vast money creation across the globe as a reason to continue to ride the equity train.

He drew attention to an incredibly underweight equities stance by retail investors, pensions and more.  He feels that eventually there will be a shift.  Inflows to equity funds at the start of the year were at higher levels than they have been in quite some time.

Tepper gave a memo to long/short managers too, saying "good luck, because you can't get long enough" in this environment as he feels there will be a 'party like the 90's.'  Arguing potential for 20-30% returns in equities, he feels you don't want to be long risk averse assets like Treasuries, the yen, or the swiss franc.  He says to be long equites and 'equity-like' things.

His most notable soundbite was probably when he said that the US is on the "verge of an explosion of greatness."  Regarding Europe, Tepper feels that the tail risk there is a non-issue, at least for this year.


Likes Citigroup (C)

He pointed out his fondness for shares of Citigroup (C), arguing that it potentially has 50% upside from here, saying the company's foreign business is very valuable. 


Bullish on Airlines

Tepper highlights the reasons to like airline stocks:  a potential strong dollar scenario and oil remains largely flat (due to potential new discoveries etc), you have an industry that will do will in that scenario, and you have a consolidating industry, and you have capacity down this year.  He's looking for some airlines to start returning capital as well.

Our Hedge Fund Wisdom newsletter flagged Tepper's fondness for airlines a few quarters ago.  He owns US Airways (LCC) and Delta Airlines (DAL).


On Position Sizing & Liquidity

While everyone will focus on Tepper's bullish comments, he made a good point regarding position sizing and tracking his hedge fund's holdings.  While Citigroup is one of his larger positions, he mentioned it's only a 1.5% or 2% position compared to his firm's overall AUM.

Tepper says that instead of looking at the position size of the investment relative to his firm's AUM, look at how much of a given company that they own if you're tracking their positions.

He notes that he sizes positions accordingly to how easily they can get in and out.  He says that, "I value liquidity a lot."  So he's a long-term investor but he likes stocks like Apple (AAPL) that are extremely liquid.  He learned a very valuable lesson in 1998 regarding liquidity in Russia and that obviously shapes his decisions to this day.   

He also touched on how he started Appaloosa, something that's explained in more detail in the book The Alpha Masters.  We've highlighted an excerpt from the book in the past that touches on why his firm is named Appaloosa.


Below is the video of David Tepper's interview with Bloomberg:



If you missed it, be sure to also check out Tepper's other recent interview on CNBC as well.

Rusty Rose Says Avoid Major Banks

We're posting up notes from the Great Investors' Best Ideas Investment Symposium in Dallas and next up is Rusty Rose of Cardinal Investment Company.

Rose: Avoid Major Banks

His presentation centered around avoiding major banks as investments.  He argued that they've gotten so big and have strayed from what true banks used to be that you no longer really know what you're investing in.

Rose rattled off a list of reasons why, including capital structure, subsidy (banks enjoy low regulated interest rates), and structural mismatch among others.  He feels that banks should compete without subsidy and that the deposit guarantee should be axed.

He wondered why analysts use book value for banks when they don't underestimate assets and they don't overestimate liabilities.  He also feels banks are still over-levered and taking too much risk (due to management incentives).

Rose also touched on how the regulatory/political environment for financials peaked in 2008.  He compared big bank stocks to Paris Hilton, saying both are famous for being famous.


For the rest of the presentations, head to notes from the Great Investors' Best Ideas conference.

Jim Chanos Still Short China, Talks Other Positions (Interview)

Jim Chanos appeared on CNBC this morning to share his latest thoughts on the market and his positioning.  The Kynikos Associates hedge fund founder said that 20% of his global short fund is China.  We've posted up the hedge fund China bear thesis before as Chanos notes it's a credit boom over there.

Why He's Short China

He's been quite patient with his China short and it's paid off.  He noted that "we get criticized that China's not in smoking ruins ... we've done just fine."  Chanos says that corporate profits are imploding in the country.

He points out that while China's exports are important, their imports are also very relevant to watch.  While the trade export balance has been decreasing (not a new phenomenon), capital is also leaving and that's a new development Chanos drew attention to.

Lastly, he notes that he wouldn't trust any accounting in China and he could spend an hour talking about that issue alone as corporate accounting is that bad over there.

Chanos' Other Shorts

In regards to what else he's been shorting, he continues to dislike Hewlett Packard (HPQ).  He's long Microsoft (MSFT) and Oracle (ORCL) as hedges to that stake.

Chanos again addressed the notion of global value traps (his presentation via that link).  He says you want to be short printers and ink.  The cloud is fundamentally changing the tech landscape.

On the financial side, he likes to use the term "deleveraging credit python,"  noting that China, Europe, and the US are the three to watch.  In banking, they're long JPMorgan (JPM) and Citi (C).  For the other side of the coin, we recently detailed why Bill Ackman sold Citi.  Kynikos has also been short Chinese and Spanish banks.

Back in 2007 and 2009, Chanos was short healthcare but he no longer is short.  Though he says that longer term, healthcare is a huge issue.

Embedded below are the videos from Chanos' TV appearance this morning.  Video 1 on China:



Video 2 on tech companies & banks:




For more from the well known short seller, check out:

- Chanos on the psychology of short selling

- Chanos on the power of negative thinking

Bill Ackman on Why He Sold Citigroup (C): Pershing Square Q2 Letter Excerpt

In late June/early July, Bill Ackman's hedge fund Pershing Square Capital Management liquidated its stake in Citigroup (C).  In his second quarter letter to investors, Ackman detailed why.

We wanted to highlight this because investing is a continual education and great investors are always looking for how they can refine their process.  Learning from mistakes is a necessity and when you can learn from others' mistakes, you can often gain the knowledge without the battle scars.

Ackman's experience with C underscores two principles: 1. Invest in what you're comfortable with (or as Warren Buffett would say: stick to your circle of competence).  And 2. If you can't sleep at night, sell.


Ackman on Why He Sold Citigroup

The Pershing Square founder writes, "Since the inception of Pershing Square, I had been opposed to making long investments in financial institutions.  The inherent leverage, limited transparency, and regulatory risk discouraged us from investing in banks.  Historically, most of our profits in financial institutions have been generated on the short side.

"We were attracted to invest in Citigroup beginning in April 2010 because of its strong balance sheet after the U.S. government-led recapitalization, the bank's low-cost deposit and liability funding, the favorable environment for making new loans, its conservatively marked balance sheet post-crisis, its dominant global-banking franchise, its strong senior management team who we believed was executing a strategy that made sense, and a price which we believed offered an attractive return when compared with the risk.

Over the course of our ownership, our predictions with respect to the bank's earnings power and improvements in its asset portfolio proved accurate.  Over the same period, however, the regulatory and political environment for financial institutions deteriorated, sovereign credit and European financial institutions' creditworthiness weakened, and an important catalyst for value recognition was postponed when the government denied Citi the ability to return capital to shareholders.  While the impact of these macro events affects nearly all businesses, they disproportionately and negatively affect financial institutions.

While we have constantly reassessed our decision to retain our stake in Citi over the last two years, at each previous moment of reconsideration, we elected to retain our shares because at successively lower valuations the stock price appeared to continue to offer sufficiently greater profit for the associated risks of the investment.  In other words, while risk increased, the stock price quickly declined to reflect those risks, and the investment thereby continued to offer apparent compelling value versus a sale.

In recent weeks, I have reassessed our thinking on Citi.  While I believe that our initial fundamental analysis was correct, we erred in overpaying for our stake because we did not demand a large enough potential profit from this investment in light of the inherent environmental uncertainties of investing in a financial institution.  Recent events in the banking world - in particular, a large surprise derivative loss at JP Morgan and the recent LIBOR manipulation scandal - were the proverbial straws that broke this camel's back.

Our approach to risk management at Pershing Square relies in part on what I have deemed the 'Sleep at Night Test.'  After one bad night's sleep thinking about Citi, I pulled the rip cord.  While I still believe that Citi is a very cheap, well managed, high-quality banking franchise that is likely to increase in value over time, there are much easier ways for Pershing Square to make money.  As a result, we redeployed the capital from the Citi shares into our new investment in Procter & Gamble.  We thereby benefit with a large tax loss for our U.S. investors, reduced exposure to systemic risk in the portfolio, and fewer sleepless nights."


Takeaways From Ackman's Lesson

There are a few key takeaways here:  Ackman had a clearly outlined thesis and constantly re-assessed both it and the risk/reward skew of the investment.  He then recognized he made an error, knew exactly what that error was, and cut his losses.

Investors often fixate on the upside of a potential investment.  Great investors focus on the downside and the degree of risk/reward.  In this case, Ackman concluded that the risk he was taking outweighed the potential upside.  

Since in this case his error was "overpaying for our stake," this just goes to reinforce Warren Buffett's old adage: "price is what you pay, value is what you get."  As always, price and determining a margin of safety are some of the most important aspects of the investment equation.

  
Bill Ackman will be presenting his latest investment ideas at the Value Investing Congress in NYC in 3 weeks along with David Einhorn, Barry Rosenstein, Jeff Ubben & many more hedgies.  You can register to attend here.

Bill Ackman & Pershing Square's Q1 Letter: On Canadian Pacific, J.C. Penney & Citigroup

Bill Ackman's hedge fund firm Pershing Square is out with its first quarter letter to investors.  The hedge fund is up 9.3% year-to-date and updates investors on its holdings in Canadian Pacific (CP), J.C. Penney (JCP), as well as Citigroup (C) and General Growth Properties (GGP).

Pershing highlights that they've started buying a new stake and have added a rare equity short, but they've declined to disclose any names.

In the letter, Ackman touched on the notion of time arbitrage, something he defines as "taking advantage of the opportunity for long-term profit offered when short-term investors sell due to disappointing short-term macro or business progress."

He says that this has been a big source of profits for the hedge fund and long-time readers will know this isn't the first time we've seen this.  John Griffin of Blue Ridge Capital has long classified investments as either time arbitrage or catalyst driven.

Ackman touches on J.C. Penney in-depth in the letter and we've also highlighted Ackman's JCP slideshow from the Ira Sohn Conference.

Ackman is also profiled and interviewed in the brand new book, The Alpha Masters.

Embedded below is Bill Ackman & Pershing Square's Q1 letter to investors:





For more hedge fund letters, head to:

- Greenlight Capital's Q1 letter

- Third Point's Q1 letter

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.

Bill Miller on What Stocks He Likes Now: CIMA Conference

Continuing the series of notes from the CIMA Conference (Columbia Investment Management Association), we move on to the presentation and Q&A from Legg Mason's Bill Miller.

Bill Miller on What Stocks He Likes Now

He started out discussing how he is different from traditional value investors. Low P/E, low cash flow not enough. Focus on long-term creation of business value, the future, not just the past. Allowed them to avoid the terrible returns of value investors. How does he invest in tech? There are a few platforms that are locked in long-term. They did do 10-year projections on Amazon. If you think through it carefully, you CAN make long-term projections on tech. (They are doing it with Facebook now).


AMZN example: high growth, high valuation companies, in aggregate, have small chance of maintaining that rate. But some can. What is the probability that this is an exception to the base rate? Once companies get a certain level of market share, it is very difficult for that share to be eroded. (Network effect). True even with low barriers to entry. You want a business with low switching costs that nobody switches from. GOOG/MSFT search example- GOOG has 66%; MSFT has 14%, even with spending. Once you have stable market shares, and large market. It’s judgment, understanding the industry, not just looking at P/E ratios. They are looking at Facebook now.

AMZN: low 20s GMs, and high cost structure. Bezos exploited technology and customer-focus, to achieve critical mass, costs all up front, market would finance it. When stock was down, Bezos said he was focusing on new markets and customer service. They had a dominating presence by then. Issue now is what is the level of OM long term? Bezos says it will still be a double-digit OM business long-term. Bezos said, “I’m not going to make the Steve Jobs mistake of pricing the iPhone to subsidize the rest of the world R&D by pricing it so high.” IPad is priced much more competitively, so they have total share.

Bruce Greenwald says cloud isn’t that profitable because they have to provide capacity when everyone needs it, so it’s not really just using their excess capacity. The device business is bad, too. Miller says the device business is defensive. All of retail is realizing that AMZN is a threat to EVERY segment. AMZN has all the data about what you buy, like, etc. Ease of use. End market is so large. GOOG: internal discipline issue on capital spending.


How he does valuation? Build probabilistic models. No predictions: what does the market believe, what is embedded in the price, what is the trajectory of the business? INTC, CSCO, AAPL, MSFT, good business with reasonable valuations today.

Macro is fading as an important thing for investors. People have adequately discounted the macro risks.


Biggest Lesson He's Learned: if building an investment business, you need to be different, and right. That will attract assets. He went from zero to 75B in assets. Those assets will also fly out when you are different and wrong. To build a business, be different and right, to retain the business, you have to be a closet indexer.

Things change. Understanding and recognizing them is the key. They were late in the game in recognizing how far valuations would be squeezed by the financial crisis. “Don’t rule anything out.” When in a crisis, wait for the global coordinated action.


Stocks Miller Likes Now:

2008 was a lot of permanent loss, 2011 was temporary losses.

1. Bullish on housing already, all data-driven. KBH up 80% for the year! Still lower than it was a year ago. Housing cycle in process of bottoming, orders are up, better business models. Massive cyclical turn, with profound implications for the US economy.

2. Genworth: Mortgage business down, 50-100% gain in 12 months.

3. Financials: C, BAC below tangible book.

4. Insurance companies: below book value.

5. Airlines: Worst industry in the history of the world. Here’s the difference now. Was commodity business, unionization, high regulation, and fuel costs volatile, fragmented. Highest share was 12% in the US. United now 26%, DAL 25%, so story is consolidated business with better pricing. Positive FCF for 3 years straight now. UAL 40% ROIC. $5 FCF, will be investment grade in a year, trades at 3.5x earnings. Small, risky position.

6. Techs: AAPL, largest position. What kind of company is it? Debate is if Apple is just a really good tech company, what’s it worth? Not much, these things change rapidly. If Apple is a recurring revenue company, consumer products company, then it’s radically mispriced. Bill makes the case that it is a consumer products company; the repurchase rate on the iPhone is 95%. Very few SKUs in line-up. Only 375 stores, only in a third of the carriers worldwide. Share in iPhone doubled from a year ago. Stock is 10x eps and low earnings estimates. 90B in cash, dividend possible. In short term, very low risk. Value it at the least, like a cable company. Compare to KO, or NKE.

7. Facebook: actually, the higher it goes, the more the probability of winning. You can’t look at it like paying $85B for $1B in operating profit. That’s what they DID; they’ll do $2B this year, more than AMZN ever had in history, higher margins, less competition.


Q&A Session:

Why banks? How can you trust the B/S? Have to compare categories to overall market prices. Consolidation means top 6 banks are 63% of GDP. It’s impossible for the US GDP to grow without the assets of the banks growing. Banks as a whole are mispriced, but not compared to each other. BAC has 70B market capital; they were earning 40B a year ago pre-tax, pre-provision. Biggest beneficiary of housing recovery. Can’t get comfortable at the micro level on all their assets, but you can get comfortable about the direction of those assets.

AMZN: can it wipe out other business? Way too early to say. No threat to WMT, COST, JCP.

Market: Best thing for the stock market would be for the bond market to sell off; indicates fear about tail events is dissolving. Biggest risk to the market is Israel attacking Iran. Policy errors. Like in 2008, they wiped out capital as they told people to raise capital.


For the rest of the notes from the CIMA Conference, head to these posts:

- Dan Loeb: Lessons He's Learned as an Investor

- David Einhorn Question & Answer Session

- Bruce Berkowitz's Basic Checklist for Investing & What He's Learned

- Distressed Investing Panel (Dan Loeb & Daniel Krueger)

- Long/Short Equity Investing Panel (Whitney Tilson)

- Michael Karsch on Risk Management

- Bruce Greenwald's Market Comments