Third Point's Q3 Letter: EssilorLuxottica Thesis

Dan Loeb's hedge fund firm Third Point is out with its third quarter letter.  In it, they touch on activist investing, their successful investment in Sotheby's (BID), an update on Sony (SNE) and Argentine Credit, and also outline their thesis on newer holding EssilorLuxottica.

Of the latter, they write:

"Our analysis of potential merger synergies points to over €1 billion in additional profit through efficiencies and revenue growth, almost double the Company’s current targets.  In the near‐term, this will be driven by cross‐selling to wholesale customers, insourcing lens procurement, and supply chain efficiencies.  The longer‐term opportunity to disrupt the industry value chain is even more appealing: combining lens and frame to shrink raw material need and waste, reducing shipping costs by merging prescription labs with global distribution hubs, and providing a true omni‐channel sales offering.  These initiatives will transform the way glasses are sold, significantly improving the customer experience."

Third Point sees the company earning over 8 euros of EPS in 2023 and for earnings and FCF to grow at a mid-teens compound annual growth rate.

Embedded below is Third Point's Q3 letter:



You can download a .pdf here.

For other recent hedge fund letters, you can also read Howard Marks' latest letter here.

New Howard Marks Letter on Negative Interest Rates: "Mysterious"

Oaktree Capital's chairman Howard Marks is out with his latest memo.  It is entitled "Mysterious" and deals with the topic of negative interest rates.

He writes, "The fact that we know what they are–as we do with inflation and deflation – doesn’t alter the fact that we don’t know for sure why negative rates are prevalent today, how long they’ll continue in force, what might cause them to turn positive, what their consequences are, or whether they’ll reach the U.S."

The rest of his letter follows.  Embedded below is Howard Marks' latest letter:



You can download a .pdf copy here.

For more from this manager be sure to check out his books Mastering the Market Cycle as well as The Most Important Thing.

Warren Buffett's 2018 Annual Letter: Berkshire Hathaway

Warren Buffett has released his 2018 annual letter in Berkshire Hathaway's annual report.  In it, he notes they bought $43 billion of marketable equities last year and sold $19 billion.  Berkshire now has a cash-equivalents hoard of $112 billion and another $20 billion in fixed income.

Here's some select quotes from the letter with the full text below:

On share buybacks:  "All of our major holdings enjoy excellent economics, and most use a portion of their retained earnings to repurchase their shares. We very much like that: If Charlie and I think an investee’s stock is underpriced, we rejoice when management employs some of its earnings to increase Berkshire’s ownership percentage."

On Berkshire buying back its own shares:  "it is likely that – over time – Berkshire will be a significant repurchaser of its shares, transactions that will take place at prices above book value but below our estimate of intrinsic value. The math of such purchases is simple: Each transaction makes per-share intrinsic value go up, while per-share book value goes down. That combination causes the book-value scorecard to become increasingly out of touch with economic reality."

On holding cash:  "Berkshire will forever remain a financial fortress. In managing, I will make expensive mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities. But I will never risk getting caught short of cash."

On finding private acquisitions: "Prices are sky-high for businesses possessing decent long-term prospects.That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities.  My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year."


Embedded below is Warren Buffett's annual letter:



You can download a .pdf copy here.

For more from the Oracle of Omaha, be sure to check out Warren Buffett's recommended reading list.


We've also posted up other recent investor letters:

- Excerpts from Baupost Group's letter

- Third Point's Q4 letter 

- Sequoia Fund's letter

Third Point's Q4 Letter: Updates on Baxter, Campbells Soup, United Technologies & Nestle

Dan Loeb and Third Point are out with their fourth quarter letter to investors.  Third Point finished 2018 down 11.3%, only the 4th time in 24 years they've lost more than 1% in a year. 

Their Q4 letter includes a large section on the state of the credit markets, as well as portfolio updates on some of their equity holdings like Baxter (BAX), Nestle (NSRGY), Campbells Soup (CPB), and United Technologies (UTX).


Third Point's Q4 Letter: Updates on Equity Positions

On CPB: They settled their proxy fight that gave them a mix of board representation as well as regular access to the board and executives.   They helped CPB recruit Mark Clouse as new CEO.  They're looking for the company to "repair the balance sheet, execute an operational turnaround of the business, and explore all options to create long-term value for  shareholders."


On UTX:  "Despite the separation announcement, UTC’s sum-of-the-parts  discount  has  continued  to widen  and  the  valuation  gap  versus  UTC’s  closest  multi-industry   peer,   Honeywell International, has reached a new 10-year high.The coming separation will shine a greater spotlight on the large valuation gap to UTC’s pure-play peers.During the separation process, we  expect  the  management  team  to  highlight  UTC’s  asset  quality  and  to  increase transparency  around  Pratt & Whitney’s very significant multi-year  inflection  in  free  cash flow generation."


On BAX: Operating margins of 17.4% have been achieved and they think there's further upside to 23%.  Since 2016 the company has returned $4 billion to shareholders and used another $1 billion for business development.  "Over the next 12-24 months, Baxter  expects  to  start  reaping  the  fruits  of  its  labor  with  several  new  product  launches including Spectrum IQ and Evo IQ pumps, and new generic injectable drugs. The innovation cycle  should  serve  to  drive  revenue  growth  acceleration  and  contribute  positively  to underlying operating margins."


Embedded below is Third Point's Q4 letter:



For more recent investor letters, we also posted up Warren Buffett's annual letter, as well as excerpts from Baupost Group's letter and Sequoia Fund's letter too.

Howard Marks' Latest Memo: Political Reality Meets Economic Reality

Oaktree Capital Chairman Howard Marks is out with his latest memo entitled Political Reality Meets Economic Reality.  In it, he spends the first part of the letter with interesting first and second order effects of the impact of tariffs, examining what's perceived as a benefit versus a risk. 

Marks then goes on to touch on something else that's worrying him even more: increasing anti-capitalist sentiment.

Rising populism is something he's watching, and he's not alone, as Ray Dalio of Bridgewater Associates has been cautioning about this as well.

Marks writes,

"A great deal of America's economic progress has resulted from people’s aspiration to make more and live better.  Take that away and what do we have?  The people at the bottom won’t have as many at the top to resent.  But without the contributions of those who aim for the top, everyone will have less to enjoy.  This is why I worry about the rise of negative sentiment toward capitalism and antipathy toward those who succeed under it."

Embedded below is Oaktree Capital's latest memo from Howard Marks:



You can download a .pdf copy here.

Don't forget that Marks also has a brand new book out: Mastering the Market Cycle that's definitely worth checking out.

Sequoia Fund Q4 Letter: New Positions in a2Milk, Electronic Arts & Melrose

Ruane, Cunniff & Goldfarb is out with its Q4 letter for 2018.  Their Sequoia Fund finished the year -2.62% compared to -4.38% for the S&P 500.

New Positions in a2Milk, Electronic Arts & Melrose

During the quarter, the fund started 3 new positions.  Here's their thesis on a2Milk, a premium milk and baby formula producer in New Zealand:

"A good analogy here is Greek yogurt, which is believed in some quarters to confer health benefits you can’t get from regular yogurt. While Greek yogurt, like A2 milk, is a commodity product, companies like Fage and Chobani have built big businesses by wrapping compelling brands around it. a2Milk is attempting to do the same thing, to great effect thus far. Riding powerful consumer trends favoring products perceived to be healthy and natural, a2 has become the leading premium milk brand in Australia while making rapid inroads into the massive and quality-obsessed infant formula market in China. An effort to penetrate the U.S. milk market is also showing early promise."

Their new stake in Electronic Arts is a bet on gaming.  Games are taking more of people's time and are becoming more expensive to produce, favoring deep-pocketed companies like EA who have scale.  Sequoia feels the trends of digital game delivery and in-game purchases will benefit them.

Sequoia's bet on Melrose, on the other hand, is a bet on the jockey.  They write,

"Melrose is essentially a publicly-traded private equity firm, but with some very unusual twists. It mostly avoids borrowed money, focuses on only a small handful of investments at any given time and eschews dedicated funds that create a compulsion to invest without regard for the quality of the opportunities on offer. As with Berkshire and Constellation Software, the combination of a differentiated approach and a talented team has enabled Melrose to compile a hugely impressive long-term record of value creation. The company has never lost money on any of its realized investments, and in aggregate, it has produced an IRR of 24% per annum. At present, the company owns a collection of manufacturing businesses in the U.S. and Europe that span the aerospace, automotive and HVAC industries. In aggregate, they’re unlikely to grow any faster than the overall economy, but we think Melrose can make them substantially more profitable, and we ultimately expect management to sell them at attractive prices, freeing up time and capital for new opportunities."


Sold Almost All Of Their TJX Stake

During the fourth quarter they also sold almost all of their TJ Maxx (TJX) position.  This is notable as they first bought shares almost 20 years ago.  While the company is still operating well, they feel the future of the stock and business is less exciting as the PE ratio roughly double what they originally paid.

The letter also touches on 3 stocks that performed poorly for them last year that they still own: Mohawk (MHK), Naspers, and Charles Schwab (SCHW).

Embedded below is Sequoia Fund's Q4 letter:



You can download a .pdf copy here.

For more fund letters, be sure to check out excerpts from Baupost Group's Q4 letter as well as Oaktree Capital's Howard Marks latest letter.

Seth Klarman's Baupost Group Year-End Letter Excerpts 2018

Seth Klarman has released Baupost Group's 2018 year-end letter and it's already received some media coverage which we linked to yesterday regarding his thoughts on rising global uncertainty, rising division in America, and growing global debt.  As always, he seems to have a cautious stance.  Below are further excerpts from the letter that are more investment-focused.  For 2018, Baupost's funds finished between flat and down less than 1% for the year. 

"Today’s markets feel strange and enigmatic. We will not complain about this; indeed, we see it as an opportunity. While the indices remain historically expensive, many stocks – of growing, not cyclical or declining firms – recently hit 52-week lows and trade at single-digit P/Es. These are levels that traditionally occur closer to market bottoms than tops. The recent selloff likely presented a buying opportunity – you can go years without seeing such valuations – but not across the board and not one for the faint of heart."

Klarman also postulated that private equity might have been the most over-extended asset class last year and wondered if the trend could continue as their tailwinds of low interest rates starts and a growing economy start fading away.

The Baupost founder also expressed another area of concern:

"Moreover, we have been increasingly worried that the U.S. financial markets are very highly leveraged not only with copious direct borrowings but also in less obvious ways – psychologically, algorithmically, and structurally – with investors vulnerable to exactly the same sort of urgent pressures that actual portfolio leverage can give rise to. As with a margin call, those pressures can include an intensely short- term orientation, extreme loss resistance, and an inability to stand apart from a panicky crowd."

As it pertains to psychological leverage, he notes that complacency has risen with the reduction of volatility.  And this complacency can then violently swing the other direction once volatility picks up (as the market showed in its recent sell-off).

Regarding algorithmic trading, his point is that with as much as 85% of all trading being done by machines, it's really hard to predict how these algorithms might react to new and/or unexpected conditions.

Lastly, index funds hold the lion's share of stocks these days and liquidity and ownership have become more concentrated, he notes.  This could cause a sharp impact on small cap companies.

Klarman then finishes up by touching on balancing risk-taking with risk aversion.  Baupost's strategy is to "forgo some upside in order to truncate the downside."  

"We believe another key element in portfolio management is curtailing the duration (the weighted average life) of one’s portfolio through exposure to investments with catalysts for the realization of underlying value. Catalytic events shift the outcome of investments from a reliance on future market multiples and macroeconomic developments (which are not at all under your control) to a dependence on your assessment of the outcomes, probabilities, and implications of announced or anticipated corporate events, including mergers and acquisitions, bond maturities, debt restructurings, bankruptcies, major corporate asset sales, spinoffs, and tender offers. No strategy can avoid all risk of loss. But we believe our approach should increase the likelihood of achieving sustainable gains with limited downside risk over the long- run. To put it differently, a portfolio of near infinite duration (such as an all equity portfolio without catalysts) can trade just about anywhere. With such exposures, if stock prices plummet, the odds go up that an investor will feel pressure to do the wrong thing and sell into market weakness. A limited duration portfolio, both because of the hopefully truncated downside in a bad market as well as the beneficial cash inflows (buying power) that catalysts usually generate, is hugely advantageous in navigating through turmoil."

Baupost saw the recent sell-off as an opportunity in some equities, establishing new stakes, while also increasing and decreasing other stakes. 

That said, he is certainly concerned about growing global uncertainty, rising division in America, as well as rising global debt.

Third Point's Presentation on Campbells (CPB): Refresh the Recipe

Dan Loeb's hedge fund firm Third Point has an activist position in Campbells (CPB).  They recently released a presentation called #RefreshTheRecipe where they are pushing for change at the company.

Third Point highlights that Campbells has underperformed both peers and the S&P under various timelines (19% shareholder return vs 306% for S&P over the last 20 years).  Third Point seeks to replace the board to enact change and originally pushed for the company to sell itself or merge with another packaged foods company.

Dan Loeb's firm is looking to turnaround the soup business, stabilize the fresh food business and stop margin declines with disciplined cost management, and make the overall product offerings more relevant to modern consumers via ingredients/flavors and new designs/packaging.

For the snacks business, Third Point sees opportunity to innovate with new flavors, ingredients and packaging to drive market share, execute on deal synergies from the Snyder's-Lance deal, and wants them to explore divestitures of non-core brands like Pop Secret and Pepperidge Farm frozen cakes.

If the whole business were to be sold, they comp relevant transactions leading to a 14-15x EBITDA multiple, or between $52 and $58 per Campbells share.  CPB currently trades around $37.


Third Point's Campbell's Presentation: Refresh The Recipe

Embedded below is the slideshow:



For other recent hedge fund commentary, we posted up Bill Ackman's presentation on Starbucks as well as Greenlight Capital's Q3 letter.

Greenlight Capital Q3 Letter: Sold Apple, Still Short Tesla

David Einhorn's hedge fund Greenlight Capital has had a rough 2018.  They're now down 25.7% for the year.  During the quarter, they exited the last of their longstanding Apple (AAPL) position at $228 per share. 

They feel their AAPL thesis that was once differentiated has now become consensus and the valuation of 17x forward earnings is "much less enticing and we are somewhat worried about Chinese retaliation against America's trade policies."

Greenlight also continues to be bearish on Tesla and noted many similarities to Lehman Brothers before its collapse.  They also highlighted CEO Elon Musk's erratic behavior.  There's numerous paragraphs about TSLA in the letter below.


Greenlight New Longs: Altice USA and BT Group

In other notable portfolio activity, they initiated two new longs: Altice USA (ATUS) and BT Group. 

ATUS they acquired at $18.38 and view it as a discounted play on cable peers in the US.  They feel the company has better cashflow conversion and more investment opportunities than rivals. 

BT Group they purchased at £2.19 and feel that shares were cheap at 4.7x EV/EBITDA and an 8% dividend yield. 

They also covered their 11 year short in Martin Marietta Materials (MLM) and covered another short: TransDigm Group (TDG). 

Also, they sold out of their Micron (MU) position and exited their Mylan (MYL) stake as well.


Greenlight Capital's Q3 Letter

Embedded below is Greenlight Capital's Q3 Letter:



For more recent hedge fund commentary, check out Bill Ackman's new long Starbucks SBUX presentaiton.

Howard Marks' New Memo: The Seven Worst Words in the World

Oaktree Capital Chairman Howard Marks has released his latest memo entitled "The Seven Worst Words in the World."  He starts the memo with a reminder that his new book comes out next week: Mastering the Market Cycle: Getting the Odds on Your Side.  His first book was excellent, so we're looking forward to this one too.

The words he's referring to in the title of his latest memo are: "Too much money chasing too few deals."  He uses this quote as a starting point for his thoughts on the market today.  Basically, he notes that the recovery from the recession with loose monetary policy has lasted ten years, and as such:

"While there certainly is no hard-and-fast rule that limits economic recoveries to ten years, it seems reasonable to assume based on history that the odds are against a ten-year-old recoverycontinuing much longer."

He feels the requirements have been met for a frothy market and has a cautious stance.  While he acknowledges things can go on for a bit longer, there are many conditions flashing warning signs.  Read on to ascertain why.

Embedded below is Howard Marks' latest memo, The Seven Worst Words in the World:



You can download a .pdf copy here.

Be sure to also check out Howard Marks' brand new book that is coming out: Mastering the Market Cycle: Getting the Odds on Your Side.

Howard Marks' New Memo: Investing Without People

Oaktree Capital's Chairman Howard Marks has penned his latest memo.  It is entitled Investing Without People and talks about the evolution of the markets with the increasing presence of index/passive investing, quant strategies, and machine learning/AI.

Marks writes,

"When people invest more in certain stocks than others, the prices of those stocks rise in relative terms. And when everyone decides to refrain from performing the functions of analysis, price discovery and capital allocation, the appropriateness of market prices can go out the window (as a result of passive investing, just as it does in a mindless boom or bust). The bottom line is that the wisdom of investing passively depends, ironically, on some people investing actively. When active investing is dismissed totally and all active efforts cease, passive investing will become imprudent and opportunities for superior returns from active investing will reemerge. At least that’s the way I see it."

He then concedes that computers can do many things better than investors. But at the same time he notes that, "Computers can do an unmatched job dealing with the things that can be counted: things that are quantitative and objective. But many other things – qualitative, subjective things – count for a great deal, and I doubt computers can do what the very best investors do."

Marks' Upcoming New Book

Also, it was recently revealed that Marks has a new book coming out in a few months entitled Mastering The Market Cycle: Getting The Odds On Your Side.

Marks' Latest Memo

Embedded below is Howard Marks' new memo, Investing Without People



You can download a .pdf copy here.

Third Point's Q1 Letter: United Technologies, DowDuPont, Lennar & Dover

Dan Loeb's hedge fund firm Third Point is out with its first quarter letter.  During Q1, they returned -0.6%.  The letter talks about their new stake in United Technologies (UTX). 

They're pushing for a split-up into 3 companies: Otis, CCS, and an aerospace company.  They see this driving $20 billion of excess value (>20% of market cap) due to the fact that all three standalone companies should trade at higher multiples based on equivalent peers. 

They write, "Otis peers Kone and Schindler trade on average at 15x forward EV/EBITDA.  CCS peers, Allegion, Ingersoll-Rand, and Lennox, trade on average at 13x forward EV/EBITDA.  The remaining aerospace company would be the only liquid, US large-cap aerospace supplier other than TransDigm, which trades at 15x forward EV/EBITDA."  They also note though that management seems 'less open' to a three-way split than shareholders might want. 

Third Point also provide updates on their positions in DowDuPont (DWDP) and Lennar (LEN).  The former is one of their largest positions and they see a discount to intrinsic value that has widened.  The latter they view as the best homebuilder in the industry with the best set of veterans.  They also updated their Dover (DOV) position, noting the event-driven nature of the company now. 

You can read Third Point's full Q1 2018 letter embedded below:



You can download a .pdf copy here.

Pershing Square Annual Report 2017: Sold Nike, Covered Herbalife Short

Bill Ackman's Pershing Square is out with its annual report for 2017.  For the year, they lost 4% net.

The report gives updates on their positions in Automatic Data Processing (ADP), Restaurant Brands (QSR), Mondelez (MDLZ), Howard Hughes (HHC), Chipotle (CMG), Fannie Mae & Freddie Mac, and Platform Specialty Products (PAH).

Pershing Square Sold Nike (NKE) Position Already

Pershing Square reveals they already sold their new Nike (NKE) position and explain the rationale below:

"During the course of our four-month ownership of Nike (we sold the position recently), the stock price appreciated by34%, reducing the returns to be earned from our investment to a level at which we believed our capital could be allocated to more attractive opportunities.  It is rare that we are a short-term investor.That said,we are always willing to redeploy capital if an investment appreciates to a level that no longer offers sufficient returns relative to other potential opportunities."


Rationale For Covering Herbalife (HLF) Short

They also outline why they covered their Herbalife (HLF) short position:

"While we have been correct in our belief that Herbalife’s business fundamentals would deteriorate as earnings per share, revenue growth, and other measures of business performance weakened substantially since we initiated the investment, we underestimated Herbalife’s ability to access debt capital and use financial engineering which–coupled with Mr.Icahn’s share purchases to materially reduce the company’s free float–has driven share price appreciation."


Embedded below is Pershing Square's 2017 annual report:



You can download a .pdf copy here.

Pershing Square Portfolio Update Presentation: Nike, S&P Global & More

Bill Ackman's activist firm Pershing Square recently made a presentation to investors about the current state of their portfolio and how they're re-tooling the organization after a few years of poor performance.  In 2017, Pershing was down 4%.

The presentation provides brief updates on all their holdings, including their new Nike (NKE) stake.


Pershing Square on New Nike Stake (NKE)

They bought Nike because it's "a high quality business that should compound long-term earnings at a high rate due to strong revenue growth and margin expansion."

They see it as an iconic brand with a dominant market position.  The company has assets via patents, a huge marketing budget, brand loyalty, manufacturing skill, and leverage with suppliers and customers.

Pershing thinks the company can continue to grow revenue in the high single digits.  They note positive secular trends of health/wellness and emerging market growth as key contributors, as well as pricing power.

The firm sees Nike expanding margins via new manufacturing processes and growth in distribution channels with "more favorable economics."


Ackman Bought & Sold S&P Global (SPGI)

The presentation also reveals that Pershing Square was buying shares of S&P Global (SPGI) during 2017 but sold the stake because they couldn't build a full position size as markets rose.

Their thesis was that "S&P is an annuity-like business with pricing power, strong secular growth and a margin opportunity."  It's a credit ratings and financial data services firm with the former comprising 55% of EBIT and the latter 45%.


Lastly, Pershing Square also bought an undisclosed position but sold that as well.  It's interesting that they aren't revealing the name.  Does this mean perhaps they might want to revisit it if the share price hits a level they're comfortable with? Who knows.

The presentation also includes updates on their stakes in: ADP, Chipotle, Howard Hughes, Mondelez,  Restaurant Brands, Fannie Mae/Freddie Mac, Platform Specialty Products, and their short of Herbalife (HLF).

Embedded below is Pershing Square's portfolio update presentation:



For more from this fund you can also read Pershing Square's Q3 letter.

Howard Marks Latest Memo on Markets & Tax Cuts

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled "Latest Thinking."  In it, he details his take on the markets and tax cuts.

He begins by highlighting the positives: fundamentals are solid, worldwide growth is in full effect, deregulation and pro-business policies are in place, etc. 

He then turns to the negatives, writing.

"Most valuation parameters are either the richest ever (Buffett ratio of stock market capitalization to GDP, price-to-sales ratio, the VIX, bond yields, private equity transaction multiples, real estate capitalization ratios) or among the highest in history (p/e ratios, Shiller cycle-adusted p/e ratio).  In the past, levels like these were followed by downturns.  Thus a decision to invest today has to rely on the belief that 'it's different this time.' Prospective returns in the vast majority of asset classes are some of the lowest in history."

Marks says that he would be on the "defensive or cautious part of the spectrum" in regards to portfolio construction at the moment.   You can read his full thoughts:

Embedded below is Howard Marks' new memo, "Latest Thinking":



You can download a .pdf copy here.

For more from this investor, be sure to also read his well-known book, The Most Important Thing.

Sequoia Fund Q4 Letter: Added to Alphabet, Exited Fastenal & Danaher

Ruane, Cunniff & Goldfarb is out with Sequoia Fund's fourth quarter letter.  They returned 20.07% for the year.

At the end of 2017, their top 10 holdings were:

1. Berkshire Hathaway (BRK)
2. Alphabet (GOOG)
3. Mastercard (MA)
4. Constellation Software (CSU)
5. Dentsply Sirona (XRAY)
6. TJX Companies (TJX)
7. Rolls Royce (RR.LN)
8. Charles Schwab (SCHW)
9. CarMax (KMX)
10. Liberty Media

They exited positions in Fastenal (FAST), Danaher (DHR), Emcor, Croda, Tiffany (TIF), and Costco (COST).  They've also trimmed stakes in BRK, MA, O'Reilly (ORLY), Waters, and TJX.

They've added to positions in GOOG, Hiscox, Jacobs, Omnicom, and Wells Fargo.  They've also started new investments in Credit Acceptance (CACC) and Royal Vopak, Priceline (PCLN).

They've been concentrating their portfolio a bit more, and their cash levels have gone down some.

Embedded below is Sequoia Fund's Q4 letter:



You can download a .pdf copy here.

For other recent fund letters, we've also posted Greenlight Capital's Q4 letter.

Greenlight Capital Q4 Letter: New Stakes in Brighthouse Financial, Twitter, Time Warner, Ensco

David Einhorn's Greenlight Capital has released its fourth quarter 2017 letter.  They finished the year up 1.6%.

Greenlight Takes New Stakes in Brighthouse Financial, Twitter, Ensco, Time Warner

The hedge fund firm initiated numerous new positions recently.

The hedge fund's new stake in Brighthouse Financial (BHF) is all about valuation.  The company was spun out of MetLife and they feel analysts have been too negative on BHF's prospects.  They feel shares are trading at a 40-50% discount to peers and note management is incentivized if shares appreciate.

Einhorn's firm also jumped back into Time Warner shares (TWX), a previous holding.  They utilized volatility in the name to re-establish a stake as the US government has opposed their sale to AT&T (T).  Greenlight feels the government has a weak anti-trust case but even if they somehow win, shares are still cheap and the company has strategic options.

Greenlight also entered Twitter (TWTR) shares with their thesis being that the user experience has improved yielding growth in new users and time spent on the platform.  They feel the company now has a better pitch to advertisers, yielding revenue growth.  The company has around a 25% margin gap to other social media peers and Greenlight feels they can close the gap.  (Note: David Einhorn is on Twitter, though he doesn't post about the market, usually just poker.)

Embedded below is Greenlight Capital's Q4 2017 letter:



For more from this manager, be sure to also check out David Einhorn's recent investment talk at  Oxford Union.

Pershing Square Q3 Letter: Restructures Herbalife Short

Bill Ackman is out with Pershing Square's third quarter letter to investors.  Pershing Square returned -3.7% net in the third quarter and was down 4.2% for the year at that time.

Pershing has restructured its short position in Herbalife (HLF).  Rather than shorting common stock, they've covered that and are now short via put options.

Ackman is also quite bullish on Mondelez (MDLZ): "We believe MDLZ is currently substantially undervalued given its high business quality, long-term secular growth potential - especially in emerging markets - and substantial opportunity to improve profit margins.  Today, Mondelez trades at 17 times our estimate for 2018 earnings per share, a discount to the S&P 500 market multiple, for a business whose attributes are substantially better than the average company in the S&P 500."

The letter also provides updates on their holdings: Restaurant Brands (QSR), ADP (ADP), Howard Hughes (HHC), Chipotle (CMG), Fannie Mae / Freddie Mac, Platform Specialty Products (PAH).

Embedded below is Pershing Square's Q3 letter:



For more recent hedge fund commentary, we've also posted up Third Point's Q3 letter as well as Greenlight Capital's Q3 letter.

Greenlight Capital Q3 Letter: New Stakes in HPE, Tempur Sealy, Micron

David Einhorn's hedge fund firm Greenlight Capital returned 6.2% in the third quarter and is now up 3.3% year-to-date.  Their third quarter letter outlines they had average exposure of 118% long and 73% short.

At the end of Q3, Greenlight's top five positions (alphabetical order) were AerCap, Bayer, CONSOL Energy, General Motors, and gold.

New Positions in Hewlett Packard Enterprise, Tempur Sealy, Micron

The letter highlights that they established a few new positions.  First, they entered Hewlett Packard Enterprise (HPE) shares.  They see earnings of $1.40 to $1.70 over the next few years as the company recently sold its outsourced services and software businesses.  They bought at $13.29 per share.

Second, they re-entered a previous holding: Micron Technology (MU).  They feel the DRAM market has improved as have the company's earnings, though think investors are underappreciating the improvements.  They bought around $29.21.

Thirdly, Einhorn's firm entered Tempur Sealy (TPX).  We posted Einhorn's presentation on Tempur Sealy from the GIBI Dallas Conference recently as well.

Other interesting notes: they covered their short of Best Buy (BBY), closed their longs in PVH and Axiare Patrimonio.

Embedded below is Greenlight Capital's Q3 letter:



Credit to ValueWalk who posted it first.

For more hedge fund letters, we also posted up Third Point's Q3 letter here.

Third Point's Q3 Letter: New Dover Position

Dan Loeb's hedge fund firm Third Point has released its third quarter letter.  Thus far for 2017, they're up 14.5% in their Offshore Fund and up 23% in their Ultra Fund.

While they feel earnings multiples are high by historical standards, they think earnings growth and low interest rates combine to make an environment ripe for higher valuations anyways.

The biggest risk they see currently?  A recession.  However, they feel the risk is low as economic growth rates are high.

Third Point's New Position in Dover (DOV)

During the third quarter, Third Point initiated a brand new position in Dover (DOV), an industrial conglomerate.  They've engaged management and think there's a 3 main areas for value creation: separate the energy segment, address the underearning core industrial portfolio, and optimize capital allocation.

Their letter also gives updates on DowDuPont, Honeywell (HON), as well as their activist position in Nestle.

Embedded below is Third Point's Q3 letter:



You can download a .pdf copy here.