Steve Eisman on Ocwen Financial & Altisource Portfolio Solutions: Invest For Kids Chicago

Next up in our notes from Invest For Kids Chicago 2013 is Steve Eisman of Emrys Partners.  He pitched two ideas: Ocwen Financial (OCN) and Altisource Portfolio Solutions (ASPS).


Steve Eisman's Presentation at Invest For Kids Chicago 2013

•    His big trade is detailed in Michael Lewis' book, The Big Short
•    “Time to up meds” after Gundlach’s presentation
•    Been analyzing financial companies for over 20 years
•    This cycle is different
•    Discussion of regional banks
•    Past cycles when you come out of recession, the loan book gets better, then loan books expand
•    Credit quality has gotten better and there is no loan growth and the Fed is not going to raise rates anytime soon
•    Assumes US growth to be 2%
•    Looking for secular growth stories bc he doesn’t want to trust US growth
•    Looking specifically at mortgage sector


•    Idea #1: Ocwen Financial (OCN): Best story in financial services
o    Servicing of current mortgages and everything else
o    Servicing of everything else requires a human
o    Banks lose money servicing mortgages and so the shift is going away from banks and towards mortgage servicing companies such as Ocwen
o    Key is that it enjoys a 70% cost advantage over anyone else due to moving servicing to India
o    Earnings have gone up 7x since 2010 and still in middle innings
o    Another trillion of mortgage servicing rights to be transferred in the next few years (Ocwen has $400 billion pip by themselves)
o    Cash generation is huge: 16% 2014E Free Cash Flow Yield (not to mention 50% growth)
o    50% upside in the next year or two assuming no multiple expansion
o    And multiple expansion is definitely possible

Eisman pitched Ocwen at the Sohn Conference in New York as well earlier this year.


•    Idea #2: Altisource Portfolio Solutions (ASPS) 
o    Stock price of $144.8
o    Spun out of Ocwen and now have three businesses
o    Key to story is massive diversification
o    Growth is 42% year over year for Q3 2013
o    Hubzu is a part of mortgage solutions biz – until recently
o    Can buy a house online and is 15% of earnings of company
o    Zillow doesn’t own MLS system
o    70% ROE and PEG ratio of 0.34x
o    Covered by one sell side analyst
o    3 questions were asked on recent call and one sell side guy asked 2 questions
o    Hubzu has revenue of 35% of Zillow and Zillow is a $3 billion company 

We've posted an in-depth analysis of Altisource Portfolio Solutions for those interested


Check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

Steve Eisman's Sohn Conference Presentation on Housing Plays: Long US, Short Canada

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Steve Eisman of Emrys Partners (he was previously at FrontPoint).  He presented "Housing: A Tale of Two Countries.  US vs. Canada."  


Long US Housing Plays

US: Fundamentals improving and accelerating. Affordability levels best in decades, Monthly principal and interest, only 14% of incomes. Inventory now at a 30 year low, shadow inventory is fading. Single- family starts should boost public builders. Last year was volume; this year is volume and pricing. California, AZ, NV, and TX are strongest- they were weakest.

3 ways to play it:

1. Homebuilders. Not cheap, but are not pricing in how much fundamentals have improved. Lennar (LEN), Standard Pacific (SPF), Pulte Homes (PHM).

2. Home building products: American Woodmark (AMWD), Fortune Brands Home & Security (FBHS).

3. Land: Forestar Group (FOR). Pure play in land. Colony Financial (CLNY) - real estate loans. Ocwen Financial (OCN) Largest non-bank mortgage servicing company. 25% FCF yield. Growth company, 7x p/e.  OCN seemed to be his favorite pick.  Our Hedge Fund Wisdom newsletter analyzed OCN back in our Q3 2012 issue.  Subscribe to the letter if you want a great company/stock overview to get up to speed.


Short Plays on Canadian Housing

He says that if a housing slowdown comes in Canada, the Canadian banks will really get hit.  "Misaligned incentives and poorly understood housing finance market."

Canada has their own Fannie Mae- called CHMC, which stepped in during 2008-2010 to do almost ALL the loans. Now CHMC is not doing loans, so banks must do it. Says these banks are all over-priced and "over-earning" because the boom from issuing insured loans is over. 

Canadian banks: Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CM), Royal Bank of Canada (RY), Toronto Dominion Bank (TD).

Short Idea: Home Capital Group (HCG.CA). Listed only in Canada. Largest non-prime mortgage originator in Canada. Carries $8.8B on their balance sheet. Has less than $1B equity, yet 100% of the credit risk on those loans. Trades at twice tangible book, expensive.


We've highlighted some past resources on this hedgie, including Eisman's pitch on for-profit education as well as Eisman's thoughts on insurers.


Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.