Notes From Invest For Kids Chicago: Lasry, Perry, Cooperman, Zell & More

Yesterday at Invest For Kids Chicago, numerous high profile hedge fund managers shared their latest investment ideas. The event had 800 attendees and raised $1.1 million (100% of the proceeds went to charities benefiting children). Please click the links below to view notes on each speaker's presentation:


Invest For Kids Chicago Notes:


Marc Lasry (Avenue Capital): Long General Motors & Hovnanian Bonds


Richard Perry (Perry Capital): GSE Junior Preferred Securities & RBS Tier 1 Securities


Leon Cooperman (Omega Advisors): Charming Shoppes (CHRS), KKR Financial (KFN), E*Trade Financial (ETFC)


Sam Zell (Equity Group Investments): Brazil's Investment Opportunity


Barry Rosenstein (JANA Partners): long McGraw Hill (MHP)


Thomas Russo (Gardner Russo & Gardner): Look abroad for opportunities, Nestle


Michael Milken (Milken Institute): Thoughts on Capital Markets


John Keeley (Keeley Asset Management): ITT Corp (ITT)


Barry Sternlicht (Starwood Capital Group): Likes Lowe's, Toll Brothers, NVR


Michael Elrad (GEM Realty Capital): Long Macerich (MAC)



For more of our coverage of the latest investment conferences, be sure to also head to notes & presentations from the Value Investing Congress.

Leon Cooperman: Long Charming Shoppes, KFN & ETFC ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Leon Cooperman of Omega Advisors gave a presentation on going long Charming Shoppes (CHRS), KKR Financial (KFN), and E*Trade Financial (ETFC).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Long Various Equities

Cooperman previously worked at Goldman Sachs for 25 years and made money in bottom-up stockpicking even when the market did nothing during the first 10 years of his career. He points out that currently everything in the markets is correlated and eventually this will change in time.

He agrees with Marc Lasry that we'll see low growth (1% GDP) and no double-dip recession. In order to dent unemployment, he argues we need to see 3% GDP growth.

Regarding the markets, Cooperman says that "people are light risk and that was why October was up so strong." He believes the market is discounting very conservative set of expectations and that the ECB will do what it takes to solve the Euro crisis. He believes there is no chance of a repeat of 2008.

Cooperman continues to preach that stocks are the best house in the neighborhood. This is the same message he presented at the Value Investing Congress. In particular, he likes three names:

Charming Shoppes (CHRS) - He likes the Layne Bryant division which services a niche of large women's apparel. He thinks the division is worth $700 million while the company has $227 million in cash and $140 million in debt and says it's probably worth 2x.

KKR Financial (KFN) - He likes the debt management arm of KKR as the 9% dividend is 2x covered by earnings. You get a 5-6% return plus the 9% dividend he says.

E*Trade Financial (ETFC) - He continues to like the improvement in the company's mortgage portfolio after their horrible foray into the market went so poorly years ago.

Additionally, Cooperman mentioned he likes the following stocks as well: Apple (AAPL), Boston Scientific (BSX), SLM (SLM), and Energy XXI (EXXI). For more from this manager, head to Cooperman's presentation from the Value Investing Congress here.


You can view full notes from Invest For Kids Chicago here.

Leon Cooperman's Value Investing Congress Presentation

At day two of the Value Investing Congress, Leon Cooperman of hedge fund Omega Advisors gave the case for going long Apple (AAPL) and E*Trade (ETFC) in a presentation entitled "The Investment Outlook & Some Attractive Values."

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


Leon Cooperman (Omega Advisors)

Embedded below is the full slideshow presentation from Cooperman:




"Like it or not, we've entered a world of risk-on risk-off macro world." Four conclusions that require four assumptions:

1. Assume US will avoid recession; remain slow growth at worst: Metrics suggest we are not on a recession track. Bank lending improving, consumer savings rate up to 4% from 1%, debt service ratio good. Not a “feel good” environment, with 9% unemployment, 10% only part-time. “I take very strong exception to the idea that 2011 is another 2008.” Corporate America most cash on balance sheets since 1955. Oil drop from 115 to 80.

2. Assume that Eurozone will effectively ring-fence Greek sovereign debt issues: “We expect sane policies to prevail, since there is no choice.” His view, based on 45 years of experience, is when the problem is so catastrophic, and expected to occur, it doesn’t occur. He thinks they’ll follow the US banking model, raise capital, shed noncore assets, delever.

3. Assumption that failed, Obama would come to the center: He says it’s not happening. Old expression: “When the President is in trouble, the market is in trouble.” He rants against Obama- says he only wants to tax the wealthy, debase the dollar, borrow from the world to create a welfare state.

4. Assume the Middle East settles down, oil prices stay reasonable: At 1100, the SPX had already discounted a mild recession that was not happening. He says stocks are compelling valuations here. Says market dropped 20%, a traditional recession market correction is 25%. Thinks the recent lows of 1100 are the downside for the cycle. Requires two of the top 4 assumptions.

Even if we did have a recession, SPX eps usually only drops 15-20%, so even if they did drop, he says 14 times trough earnings to be very compelling. He still expects SPX eps of $100 or more in 2012. Still in early stages of an economic recovery.

Valuation: Stocks are cheap relative to history, inflation, and interest rates. Last 50 years, SPX ave P/E was 15x. Now multiple is 11.6x, with only 2% interest rates vs. 6.6% average. Highest ERP in 20 years. Average bear market bottom the P/E was 12x, where we are now. Just had one of the worst 10 year return years in history, believes will mean revert. Corporate bonds are nowhere near where they were in 2008/9, down 70% in yield, yet SPX is 2 multiples lower than it was back then. He is starting to buy corporate bonds with 9% yields. 45% of the SPX stocks now pay higher yields than 10-year treasury bonds- same high level as 2009, we haven’t seen this in 50 years.

Avoid treasuries: Says 10-year bonds historically yield same as nominal GDP. Says if you believe we get 2% growth, plus 2-3% inflation, that’s 4-5% yield, and bonds will lose a lot of money. Still predicts low growth for next decade: 2-2.5% GDP, 2-2.5% inflation, 4-5% nominal GDP, stocks make 7-9%, treasuries negative return.

“You don’t have to have a strongly rising stock market to make a lot of money.” 1967 Dow was 1000, 10 years later, 1982, the Dow was 1000. Over time, there is ample opportunity to find things that are mispriced to the market. (They had EP yesterday as a 2% position before the buyout).

He’s 78% net long, says things look very cheap. With a little patience, can make a great deal of money.


Top Ten Long Ideas:

Apple (AAPL): Less than 10x multiple net of cash. Succession clear. Financial policies somewhat destructive, sitting on $80B in cash, but that may change.

Boston Scientific (BSX): 20% FCF yield

Qualcomm (QCOM): 16% grower trading for 12x

Sallie Mae (SLM)

ACE (ACE)

Transocean (RIG): Says deep water drilling cycle is turning. 6.5% yield, well covered dividend, day rate is improving. Says stock is discounting $5-10B, but will settle for $1-2B

Exxon Mobil (XOM)

KKR (KKR): Dividend paying stock, but get K1, getting 9% yield, and expects growth.

Energy XXI (EXXI)

E*Trade Financial (ETFC): Ken Griffin involved, TD Ameritrade (AMTD) could buy them. Mortgage losses over, even with no deal, management is on the right track.


For more from the Omega Advisors manager, head to Cooperman's thoughts from Delivering Alpha.


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

E-Trade Baby Loses Everything - Fake Commercial

This fake commercial titled, 'E-Trade Baby Loses Everything' is pretty appropriate given the torrential wave of selling the stock market has seen over the past week. If you're at work, be warned that there's lots of cursing/bleeping.

Email readers will need to come to the site to watch the video:

Ken Griffin's Citadel to Sell E*Trade Financial (ETFC)

Ken Griffin's hedge fund Citadel Investment Group plans to sell a ton of its shares in E*Trade Financial (ETFC), a company it had aided in the past. As the company's largest shareholder, Citadel is planning to sell over 27 million shares.

Keep in mind that even after Citadel divests its almost 9% equity stake, they still own a sizable chunk of convertible debt. If converted, this would ratchet their stake to almost 30% ownership. But this is not the first time Griffin's firm has sold shares, as Citadel sold ETFC back in late 2009 when shares traded around $1.20 per share. Since then, the shares have undergone a 1:10 reverse split and shares trade around $15.85 today.

The company underwent turbulent times during the financial crisis as it strayed from its stock brokerage roots and into the mortgage market right at the peak. After slowly but surely returning solely to its core business, the company still sits in limbo as shares are only up around 2% over the past year.

Hedge fund legend Leon Cooperman and his Omega Advisors are long E*Trade and see it as a potential takeover target. (To see the rest of Omega Advisors' portfolio, head to our new issue of Hedge Fund Wisdom). This seems to be the common investment thesis on ETFC as many investors argue it could be a prime asset to bigger houses like TD Ameritrade (AMTD) or Charles Schwab (SCHW). This thesis has not played out over the past few years (obviously). Perhaps activity in this regard would be spurred once interest rates start to rise, as this would help improve brokerage profitability.

Per Google Finance, E*Trade Financial is "a financial services company, which provides online brokerage and related products and services to the individual retail investors, under the brand E*TRADE Financial. It also provides investor-focused banking products, sweep deposits and savings products, to retail investors."

Leon Cooperman Optimistic About Equities, Concerned About Employment

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

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

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


Cooperman Sees New Economic Expansion

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

Hedge Fund Manager Prefers Equities Over Bonds

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

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




Cooperman Likes Energy and Financials

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

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

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



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




Omega Buys Energy XXI Shares

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

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

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

Philippe Laffont's Coatue Management Focused On Technology: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is Philippe Laffont's hedge fund Coatue Management. The fund was founded in 1999 and specifically focuses on technology, media and telecom. Coatue employs a typical long/short strategy and like to avoid big directional bets. Interestingly, one of Laffont's mantras is to "dare to be different." This means that he likes to focus on stocks not necessarily right in the spotlight. Laffont focuses on technology specifically and reportedly Coatue were some of the first to get their hands on an iPhone when it was launched. For more thoughts on the sector from Coatue, check out excerpts from their technology trends presentation. Laffont had previously worked for Julian Robertson's Tiger Management and as such is classified as a 'Tiger Cub' hedge fund. As such, the fund is part of the Tiger Cub portfolio that was created with Alphaclone and replicates a basket of stocks handpicked by these hedge fund managers.

The positions listed below were Coatue's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Crown Castle (CCI)
American Tower (AMT)
Qualcomm (QCOM)
SBA Communications (SBAC)
Palm (PALM)
MGM Mirage (MGM)
Popular (BPOP)
Amazon (AMZN)
Brocade (BRCD)
Amedisys (AMED)
Barnes & Noble (BKS)
Applied Materials (AMAT)
Emulex (ELX)
Fortinet (FTNT)


Increased Positions
F5 Networks (FFIV): Increased by 130%
Yahoo (YHOO): Increased by 51%
Synaptics (SYNA): Increased by 46.5%
Google (GOOG): Increased by 42.3%
Equinix (EQIX): Increased by 34.9%


Reduced Positions
E*Trade (ETFC): Reduced by 11.3% ~ we detailed their initial position back in August of 2009


Removed Positions (Sold out completely):
Research in Motion (RIMM)
Baidu (BIDU)
Sohu (SOHU)
Netease (NTES)
Taiwan Semiconductor (TSM)
Eastman Kodak (EK)
Bankrate (RATE)
Level 3 Communications (LVLT)
Synopsys (SNPS)
Microsemi (MSCC)
Netflix (NFLX)
Garmin (GRMN)
Nutrisystem (NTRI)
Silicon Motion (SIMO)
Sandisk (SNDK)
Novatel (NVTL)
Travelzoo (TZOO)
Gannett (GCI)
Utstarcom (UTSI)


Top 15 Holdings by percentage of assets reported on 13F filing

1. Apple (AAPL): 17.27%
   
2. Google (GOOG): 10.01%
   
3. Equinix (EQIX): 8.85%
   
4. F5 Networks (FFIV): 8.55%
   
5. E*Trade Financial (ETFC): 6.20%
   
6. Citrix Systems (CTXS): 6.12%
   
7. Crown Castle (CCI): 5.93%
   
8. TD Ameritrade (AMTD): 5.16%
   
9. Visa (V): 4.1%
   
10. American Tower (AMT): 3.63%
    
11. Yahoo (YHOO): 3.16%
    
12. Qualcomm (QCOM): 2.47%
    
13. SBA Communications (SBAC): 2.41%
    
14. Palm (PALM): 2.19%
    
15. Synaptics (SYNA): 2.01%
    

As you can see, Coatue Management is definitely focused on technology. Hedgie favorites Apple and Google dominate the bulk of the reported long US equity positions in their portfolio. Not far behind though is Equinix (EQIX), another play we're starting to see more managers add and we already know Shumway Capital Partners has a large EQIX stake too. Additionally, the tower stocks theme is heavy here as Coatue owns all three majors: CCI, AMT, and SBAC. Not to mention, they just started these brand new stakes all this past quarter. This is a bit different as we've seen many other hedgies favor one tower stock over the other. John Griffin's Blue Ridge, for instance, favors CCI. Coatue has exposure to all three though.

Another thing we noticed was their exposure to the brokerages through a large position in E*Trade Financial and a slightly smaller one in TD Ameritrade. Price wars in the online brokerage industry are heating up and many see ETFC as a takeover target. In terms of positions they sold completely out of, Coatue dumped RIMM, BIDU, and SOHU, all which were previously quite large positions for them. They didn't alter their previously owned positions too much. The vast majority of their maneuvers were made via purchasing brand new positions or completely dumping others.

Given all the negativity surrounding shares of Yahoo (YHOO), it was also intriguing to see them add to their stake. Some argue this is now a value play, while others argue the company is quickly being left behind the rest of the tech pack. Clearly Coatue sees some sort of value here and this fits Laffont's road-less-traveled mantra. Overall, if you're looking for good bets on the technology sector, you've certainly come to the right place. Not to mention, many of their holdings are among the top stocks held by hedge funds.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $2.0 billion this quarter compared to $2.2 billion last quarter, a slight decrease in exposure. Remember that these filings are not representative of the hedge fund's entire base of AUM.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, and George Soros' hedge fund Soros Fund Management. Check back daily for our new updates.

E*Trade Superbowl Commercial: Milkaholic

E*Trade has had a few good commercials featuring their babies over the years and here's the latest video from the SuperBowl if you missed it:



And on a market related note, we see that E*Trade has recently jumped into the broker battleground by lowering their trade commissions to compete with the likes of Fidelity, Charles Schwab, and TD Ameritrade. This competition is good all around for retail traders and investors.