Jeff Smith Long Marvell Technology Group: Capitalize For Kids Conference 2018

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Jeff Smith of Starboard Value who pitched a long of Marvell Technology Group (MRVL).  They added to the position recently and filed.


Jeff Smith's Capitalize For Kids Presentation: Long Marvell Technology Group

•    Semi co. Acquired Cavium in July 2018
•    Half their biz in storage, half in networking
•    Both are growing, both are well positioned
•    #1, or #2 in almost every key market
•    What SB has done with Marvell
•    114% underperformance vs peers over 5 years pre-SB
•    Options backdating, 8 CFOs 8 years. Accounting investigation, auditor resignation
•    Loved the business was great, Marvell’s customers wanted them to succeed
•    Entire board and management changed since 2016. Just a settlement, not a proxy. More than half the board replaced via settlement, rest turned over after
•    New management and CFO
•    Revenue shrunk, now its growing
•    Gross margins shrunk, now record highs
•    Op margins shrunk dramatically, now op margins at record highs
•    Stock has 2x’d since first 13D filing
•    Only partially closed underinvestment gap, still below index returns, gap is widening in underperformance
•    Why now? The acquisition positions it well for 5G and internet megatrend.
•    Now has complete solution in enterprise Cloud data centre and service provider. Now Marvell can compete with Broadcom, who was the only complete solution. Customers want them to compete and be strong against Broadcom
•    Trades below unaffected deal price

•    What’s changed?
o    Concerns around Cavium’s growth trajectory and inventory destocking
o    Fear related to Marvell’s end markets
o    Macro concerns, tariffs etc
o    10%+ FCF yield

•    Inventory sell down and 4G lag before 5G buildup has temporarily impacted growth rate
•    Cavium taking share in these end markets
•    Went from consumer products biz, now infrastructure end markets (data centres, etc)
•    Storage concern - Hard disk drives secular declines.
o    Great profitable biz in slow declineo    Hard drive for notebooks only 7% of Marvell’s revs
o    Storage biz as a whole now focused more datacentres and Edge / Other internet
o    Desktop / notebook is only 20% today
o    Data centre still a share gainer

•    Networking biz - all are share gainers in high growth markets
o    Wi-fi
o    ARM
o    EDGE
o    Ethernet
o    Data centre
o    5G

•    Not included in LT Financial Model
o    Not included 5G, Revenue synergies on deal, or ARM server processors. So not accounting for the revenue growth for the above
o    However, they are accounting for all the costs

•    Thinks management is credible, killed their guidance. Implying that they sandbag guidance very hard.
•    Goes through earnings guidance and earnings and were all big beats
•    R&D is higher than their peers. Still thinks it is a solid investment in product that will payoff
•    Put managers in place, thinks they are making very responsible investments, that should allow them to continue to beat earnings

•    Either get that revenue, or those R&D costs will come out.
o    —> earnings $2+/shr. 8x earnings today
o    Trades dramatically below their peers on most metrics.
•    Company in the market buying stock, $1b+ buyback program
•    Still excited about this idea


Be sure to check out the rest of the presentations from Capitalize For Kids 2018. 

Starboard Value's Letter To Newell Brands Shareholders

Jeff Smith's activist investment firm Starboard Value has taken a stake in Newell Brands (NWL).  They've teamed up with former Jarden management players in order to force change at the company.

We also highlighted last week that Carl Icahn owns Newell shares as well, though it doesn't look like they've teamed up at this point.

Starboard is seeking to replace the board of directors and today released a letter to Newell shareholders.  They write,

"While these have been  extremely challenging times for Newell, we believe that the recent poor financial  and  stock  price  performance  has  created  a unique  opportunity  to  invest  in  an  iconic company and embark on a multi-year operational turnaround that can deliver outstanding returns to  shareholders."

Embedded below is Starboard Value's letter to Newell Brands shareholders:



You can download a .pdf copy here. 

Starboard Value Takes Stake in Cars.com

Jeff Smith's activist firm Starboard Value has filed a 13D with the SEC regarding shares of Cars.com (CARS).  Per the filing, Starboard now owns 9.9% of the company with 7.1 million shares.

This is a new position for the firm and the filing was made due to activity in late November and early December.  They acquired shares primarily between $24 and $27 from November 22nd through December 18th.

The filing notes that Starboard feels that shares are undervalued and represent an attractive investment.

Per Yahoo Finance, Cars.com "operates as an online research destination for car shoppers. It sells online subscription advertising products to car dealerships by its own direct sales force, as well as through its affiliate sales channel. The company also sells display advertising to national advertisers. In addition, it offers online automotive marketplace service that connects buyers and sellers in Cars.com, Auto.com, DealerRater.com, NewCars.com, and PickupTrucks.com Websites. The company’s Website hosts approximately 4.7 million vehicle listings at any given time and serves approximately 20,000 franchise and independent car dealers in 50 states. The company was founded in 1998 and is headquartered in Chicago, Illinois. Cars.com Inc. is a subsidiary of TEGNA Inc."

Jeff Smith Long Stewart Information: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Jeff Smith of activist firm Starboard Value who pitched long Stewart Information (STC).


Jeff Smith's Presentation at Capitalize For Kids Conference 2016

•    LONG Stewart Information Services (STC).  Leading title insurance company, providing title insurance of home owners for both residential (90% of business) and commercial (10% of business)

•    $1 billion market cap, trades at 15x earnings

•    Title insurance is generally required by mortgage underwriter for buying a house and an refi. Needed for buyers’ safety to make sure no outstanding loans on the company.

•    Different than typical insurance business. Most traditional insurance business insure customers of losses for something they are trying to predict. Title insurance does not predict but essentially performs due diligence and therefore less risky, lower losses.

•    Very strong network build over many decades, with 12% market share. STC is one of the four clear leaders in this market.

•    Approximately 50% of sales are sold through direct (utilize own employees, higher margin business) and the remaining is agency business.

•    Opportunity for Starboard is: STC is currently underearning, pre-tax margins are 5% vs. industry peers of 11%. Believes margins can reach its peers based on additional cost cutting initiatives.

•    Since GFC, believes mortgage industry is less susceptible to fraud. Loss rates for title insurers has come down since 2009.

•    Balance Sheet is very strong (strongest relative to peers) and can return capital to shareholders •    Believes the company trades at a discount to peers due to years of underperformance, historical governance issues and no sell-side attention.

•    Recently dual class structure has been removed. •    Currently, Starboard has influenced the board and is adding two members (already made one change by placing the Steward CEO on the board).


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

SALT Conference Notes 2016: Griffin, Cooperman, Burbank, Chanos & More

The Skybridge Alternatives Conference, better known as the SALT Conference, is taking place in Las Vegas this week.  It's a multi-day affair with many speakers on a broad range of subjects.  We've condensed notes into primarily finance/investing thoughts from various hedge fund managers and investors below.


2016 SALT Conference Notes


Ken Griffin (Citadel):  Talked about how he built Citadel and the importance of culture at an organization.  'Avoid marrying a strategy' and instead focus on building a platform with the best people.  Business really taught him how to delegate and manage people.  On finding good talent: you've gotta be able to sell them on why they should leave and come to you.  You have to go out and find that talent instead of waiting for them to come to you.  The ones that 'knock on your door' aren't the best.  One interesting quote:  "Who is the number five manufacturer of personal computers?  Who cares?  We're in a more and more winner take all world."


Leon Cooperman (Omega Advisors):  He talked about a trend of investors moving from active to passive strategies and says that hedge fund performance can't really justify the fees these days, so fees need to come down.  He said that long-term (i.e. 'permanent') capital is doing good because they don't have to worry about lockups (citing Warren Buffett).  The other winner has been quant strategies.  Pitched the stock First Data (FDC) which recently IPO'd.  Says he's got around ~20% of his fund in structured credit at the moment.  Reiterated his belief that conditions for a recession are not present (a concept he's talked about for a while now).  Thinks the bubble is in fixed income.  Government bonds are a bad idea.  Likes Tetragon Financial, yields 7%, dividend coverage of 4x.  Buying a stock trading at half of book.


Kyle Bass (Hayman Capital):  Implied that investors need to lower their return expectations over the next few decades (5% global real return expectation).  Also agreed that fees for funds need to come down.  Says it's much harder to maintain investors than it is conviction.  Thinks we're in the early part of '07 in terms of credit/equity markets.  Says a hard landing in China is happening as we speak. Argues that China credit system is one of the biggest macro imbalances, something has to give sooner rather than later.  Hong Kong real estate is collapsing.


Roslyn Zhang (China Investment Corp):  Sovereign Wealth Fund.  Disappointed with hedge fund performance.  Compared Chinese retail investors to hedge fund herding.  Criticized those betting against the Chinese Yuan.  Argued that China's economy is still strong and that all of the building is due to the massive population; supply can be absorbed.


Sam Zell (Equity Group Investments):  Cost of regulation has gone up around 5x over the last decade.  Have been big investors in Brazil, Far East, Mexico. 


Ty Wallach (Paulson & Co):  Thinks specialty pharma stocks are oversold.  Specifically pointed out Valeant Pharmaceuticals (VRX) bonds.  Bought at 80cents on the dollar and says the co still has $10bn in equity value.  Could sell one of the many companies they've acquired if they need to cover debt payments.


Jeff Smith (Starboard Value): Activist investor.  Says settled with Yahoo (YHOO), put four new members on the board.  Notes the parts of the company are worth more than where its trading.  Core biz with $4bn in revenue, huge stake in Alibaba, Yahoo Japan, add it all up and it's more than the current market cap.  Said 'we're friendly but no one describes us as passive.'


Scott Ferguson (Sachem Head Capital):  Sold out of Zoetis (ZTS).  We noted how Pershing Square was also selling ZTS recently.  Ferguson was the one that brought the idea to Ackman to begin with (he used to work at Pershing).  Talked about how to change leadership and achieve things on behalf of investors: "Money's a great way to effectuate things" i.e. severance for getting rid of a CEO.  Says things are easier for activists these days and companies are more likely to engage. 


Clifton Robbins (Blue Harbour Group):  Activist investor.  Owns 10% of Investors Bancorp (ISBC), says it's trading at a discount to peers.  Also talked about Xilinx (XLNX), a net-cash semiconductor play; says they have some ideas as to how to utilize the balance sheet.


Michael Lewis (Author of Flash Boys and The Big Short):  Said he was surprised that both Moneyball and The Big Short were made into movies.  Said Christian Bale was dead-on with his interpretation of Michael Burry after just spending some hours with him.


Richard Chilton (Chilton Investments): Sherwin Williams (SHW): makes premium paint and coatings.  Says the company's purchase of Valspar was years in the making and they can repay the price with free cashflow in about 5 years.  Thinks there's a lot of synergies and margin overlap.  SHW does higher margins in paint/consumer and VAL does better margins in industrial coatings.  "You can't buy paint online."


John Lykouretzos (Hoplite Capital):  Takes a bit of an issue with the 'oligopoly' theme of airlines, saying it's still a competitive industry with margin pressure.  Bearish on the industry.  Main threats: excess capacity, union labor wage hikes, and of course higher oil prices.  Says that low cost carriers (LCC's) have basically destroyed the chance for legacy airlines to become a true oligopoly.  Thinks American Airlines (AAL) is the most compelling short play there.  Has some of the highest costs & exposure to rising oil.  High leverage.  Weakest FCF generation of the group.  Thinks that Southwest Airlines (LUV) can still add capacity even at higher oil prices (~$80 or so) and still generate high IRR.


John Burbank (Passport Capital):  Says China won't let outside companies 'win' especially Facebook.  "It's a hard place to win if you're not Chinese."  (While he didn't mention it, just look at Amazon's failed venture there as well).  Burbank owns Tencent (700.HK) with short Chinese Renminbi as partial hedge.  Thinks it isn't as much of a crowded trade as Facebook (FB) is.  His slide also said "Short FXI: Hedge out 'Old China' country-specific risk with China large cap ETF."


Jim Chanos (Kynikos Associates): Still short Cheniere Energy (LNG), calling it a 'pipe dream' and very expensive to peers.  Trades at 11-12x EV/EBITDA using "base case" 2021 EBITDA of $2.1bn.  Peers trading between 5-7x 2020 EBITDA.  Also commented on Alibaba (BABA) saying their accounting is dubious and that you don't really know what they're earning, calls it some of the most questionable he's ever seen. Chanos also recently talked about some of his short positions at the Sohn Conference.


For other recent hedge fund manager thoughts, head to our notes from Sohn Conference New York 2016.

Notes From Sohn Conference New York 2016: Druckenmiller, Robbins, Einhorn & More

The 2016 Sohn Conference New York just concluded and featured top hedge fund managers sharing investment ideas in order to benefit the Sohn Conference Foundation which is dedicated to the treatment and cure of pediatric cancer and childhood diseases.  Here's the takeaways:


Notes From Sohn Conference New York 2016


Larry Robbins (Glenview Capital): “Get a Grip.” Theme was stocks can be a bumpy ride for investors, and hedge funds have taken a lot of hits in the press, but if you expect them to not be short-term traders, then don’t judge them by their short-term records.   He talked his book; claiming that fundamental investing is not dead.   He is long: VCA (WOOF) – Veternarian hospital, multiple has compressed as earnings have grown and “There is no Obamacare for Veternarian hospitals.” Also pitched his longstanding holding of Thermo Fisher Scientific (TMO).  Yes, it has FX issues, but it has EPS growth.  Pitched Lab Corp (LH) as well: hit by fears of new technology, but Theranos story shows that it’s not that easy to come up with new technology. On CBS (CBS): the viewing model is changing, with over-the-top (OTT), but content still has value.   Flextronics (FLEX): they got out of the low value business, but still grew revenue 3% and EPS 15% yet their P/E is only 8.5x.  The stock fell in February 19% and nobody knows why. Abbvie (ABBV): has a pipeline, Humira has IP protection, and biosimilars will take time to develop. Brookdale Senior Living (BKD): earning less, but still, oversold. Talked about Anthem (ANTM): 1.     Managed care is still a good business  2.     Cigna (CI) merger could lead to 20% accretion  3.     ANTM vs ESRX contract repricing spat could lead to more earnings  4.     Market pricing says deal breaks, he doesn’t think it will.


Carson Block (Muddy Waters):  Famed short seller says, “No such thing as alchemy in banking” and touts Bank of the Ozarks (OZRK) as a short because they’ve done a lot of aggressive construction loans and acquisitions. Best case stock re-rates due to unsustainable EPS growth rate, worst case, balance sheet pressure.


John Khoury (Long Pond Capital):  Value oriented, private equity approach. Hyatt (H) long. Says 65% upside, and low leverage gives a floor to valuation.  Admits Pritzker family controls company but says they make good capital allocation decisions. Low end, leisure hotels most vulnerable to AirBnB threat.  Hyatt has more corporate, higher end, which is relatively insulated. Not making a bullish call on all hotel stocks.  Saying Hyatt since 2010 IPO, EBITDA is up 66%, shares up only 14% while they have bought back 20% of shares outstanding.    Uses SOTP to get $79 PT, 65% upside.


Chamath Palihapitiya (Social Capital):  Silicon Valley investor. Says Amazon (AMZN) is a multi-trillion monopoly in plain sight. Walked through e-Commerce, Amazon Web Services (AWS), says this is just the beginning, that Jeff Bezos will make good investment decisions. Says AWS is not understood by the Street and could be worth a lot more. (Seems like the AWS bull case is already widely touted by AMZN bulls?) Lots of potential losers as AWS scales.


Jeff Smith (Starboard Value): Activists. In 12 years they have replaced 162 board members at 50 companies. Likes Depomed (DEPO) long, pain medication, like Oxycontin, less abuse potential. Not taking price increases. Horizon Pharma (HZNP) tried to buy them, they refused to deal. Starboard has nominated a new board- sounds like a proxy battle is brewing.   Also like Westrock (WRK), merger of Mead WestVaco and Rock Tenn.  Sounds like a commodity business, but he says it is not, and it’s still cheap, at 4.9x 2017E EBITDA. Has $71 PT, almost a double from here.


Richard Deitz (VR Capital):  They do a lot of emerging markets stuff. He says long Greek banks and Greek treasury bonds.  Went through the sordid history of bailouts, and says now things are better, the banks are finally strong, may need one more round of recapitalizations.  141% upside, 34% IRR over next 3 years.


Stanley Druckenmiller (Duquesne Family Office): In a sentence: we have low rates, high multiples on stocks, high leverage, sell stocks and everything, buy gold.  Fed is out of control, encouraging borrowing, reckless behavior. China is out of control, just buy gold.


Jeff Gundlach (DoubleLine Capital): Comedy show, with art talk in the beginning.  In other words, his usual type of presentation. Says short XLU (utilities) long REM (mortgage REITs.)  REITS are priced at 0.88x p/book, with 11% dividend, Utilities are 1.9x p/book with 3% dividend, you earn 8% net and you can lever it up 100% and earn 15%, plus the two should converge. He mocked the “low volatility” equities and showed that even utilities have had 56% drawdowns in the past. His most incendiary statement was that Donald Trump would be President, and “he’s comfortable with debt.”


Zach Schreiber (PointState Capital): He is the man that pitched oil short 2 years ago, when it was $100 per barrel.   Long USD, short the Saudi currency, he says.  He made a compelling case for why Saudi is in an “unsustainable equilibria” with lavish unfunded entitlements, unsustainable debt, and not enough currency reserves to protect their peg. Other oil producers’ currencies are down 25- 45% vs the dollar- Mexico, Norway, Russia, for example, yet the Saudi currency is unchanged.  Only costs 1.5% to put this trade on and very asymmetric pay off.


Sohn Investment Contest Winner (Mark Grow, Columbia Business School):   DXCM, Dexcom short was the pitch. Insulin device maker (continuous glucose monitoring ~ CGM) which is facing impending competition and is unable to increase price as revenue per user declines. Says stock can drop in half.


Adam Fisher (Commonwealth Opportunity Capital):  Real estate background, now a Macro guy. Says short Japanese rates, long European rates. Very compelling case for how long JGBs that yield only 30 bps have nowhere to go but up. Even a move to 40 bps yield wipes out 10 years of return.  Says maximum return for bondholders is 9% return over 30 years - that is not a CAGR of 9%, that is a TOTAL of 9%!  Huge convexity in the trade.


David Einhorn (Greenlight Capital): He pitched Caterpillar (CAT) short, says company is NOT at trough earnings yet and the mining sector will never recover to the heights of the China boom.  No catalyst on the short, other than EPS growth expected to take longer than expected.  Then he pitched General Motors (GM) as a long, admitting that US business would drop off almost 20% but the currently money losing segments in Europe and Mexico could make up for the shortfall.  Long deck with lots of charts and cartoons as usual.  GM pitch rested on low P/E of 5.6x to increase despite US EBITDA to decline.


Jim Chanos (Kynikos Associates): Got a dig in on Tesla (TSLA), which he had said he was short earlier that day on TV.  He said Elon Musk had not enough production, not enough batteries, and now not enough executives, but he pulls production forward 2 years.  “What a showman,” he said. His pitch was a complicated one, talking about weakness in South Africa, and Nigeria, which led to a short of MTN group, a wireless carrier which is also struggling with subscriber growth and declining average revenue per user (ARPU).  At $20B EV, this is a big company that he says is not cheap.

Jeff Smith's Sohn Canada Presentation: Long Advance Auto Parts

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Jeff Smith from Starboard Value.  The activist investor revealed a new long of Advance Auto Parts (AAP).

Jeff Smith's Capitalize For Kids Presentation

-    Long Advance Auto Parts (AAP)
-    They look for value, plan, path
-    See stock going from $171.40 to >$350
-    Specialty retailer of aftermarket automotive parts
-    Have two divisions retail stores to buy parts and commercial distribution business for garages to buy parts
-    They are seeing consolidation in the industry
-    Cars are getting older and more complicated, seeing consumers taking cars to auto shops to fix their cars versus self-fix due to this.
-    SSS growth in all markets over last few years, yet AAP has underperformed by 295% vs peers
-    Peers have more retail which is known as higher margin business but this may be misunderstood
-    AAP does have a margin problem but not a revenue problem
-    There is a 800bp gap between margins in EBITDA to competitors (or as he put it best in class margins)
-    It is trading at 10x, 6.3x proforma, peers at 12x
-    Thesis: 600-740bp margin improvement, fix NWC. Grow SKU count to provide better service and get first calls from customers. Increase leverage from 1.1x to 2.5x. Consolidation and returning cash for further returns.

We already posted up Smith's slideshow presentation on AAP as well.


Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.

Starboard Value's Presentation on Advance Auto Parts

Jeff Smith's activist investment firm Starboard Value today released a presentation on their newest holding, Advance Auto Parts (AAP).  They now own 3.7% of the company.

AAP currently trades around $190 and Starboard thinks shares could be worth over $350 with some of their changes implemented.  They like the favorable industry dynamics and think that AAP has underperformed peers long-term. 

Starboard seeks to increase shareholder value via four ways:

- Improve margins through operational efficencies
- Unlock value for Worldpac (underappreciated asset)
- Return capital to shareholders (dividend and/or buyback)
- Pursue industry consolidation

Embedded below is Starboard's presentation on AAP:



You can download a .pdf copy here.

For more from this investor, head to Jeff Smith's recent interview on activist investing.

Delivering Alpha Conference Notes: Richard Perry, Eric Mindich, Bill Ackman, Nelson Peltz, Jeff Smith & More

The 2015 Delivering Alpha Conference hosted by Institutional Investor and CNBC is currently taking place and we wanted to highlight some of the thoughts from top investment managers on the best ideas panel and other panels.  Here's a brief summary of what each manager said:


Delivering Alpha Conference 2015 Notes

Richard Perry (Perry Capital): He feels Puerto Rico could possibly be the 51st state and thinks it's an interesting place to invest; he said GO bonds are safe and will trade at par. Perry argued that Greek bonds trading at 50 cents on the dollar could eventually return to par as there's a 'meaningful possibility' that a Greek bailout would actually be followed through.


Eric Mindich (Eton Park Capital):  He said that it's mostly individual investors in the turbulent Chinese A shares market.  He called the H shares more interesting.  He's a bit troubled by the future of the euro due to the situation in Greece.


Nelson Peltz (Trian Fund):  Peltz talked about his activist investment in DuPont (DD) and noted that he'd "rather be rich than right."  He continues to like PepsiCo (PEP) and thinks the company can deliver earnings growth each quarter but could do better.  Commenting on McDonald's (MCD), he said that the culture needs to be flipped on its head and it could take years.  Peltz feels Pentair (PNR) has the potential to become a platform company.  He said he has two new positions, one industrial and one he's not naming which account for 1/3 of his capital.  We recently highlighted some of Trian Fund's portfolio activity here.


Bill Ackman (Pershing Square): Ackman likes businesses that will withstand the test of time and he avoids tech since it's 'too dynamic.'  He mentioned that a lot of people haven't been talking about one of his newest investments: Fannie Mae and Freddie Mac and he really likes these.  Peltz chimed in that he doesn't know anything about the company but thinks Fannie is his favorite of Ackman's investments.  While some investors like Bruce Berkowitz (Fairholme Fund) have played the preferred shares, Ackman has a large position in common stock.  He says it offers the most upside but also conceded that it has the most downside too.  Ackman also voiced concerns on China, citing leverage and lack of transparency.  He says that almost every company he owns today is some sort of 'platform company' and we've highlighted this concept via Ackman's presentation at the Sohn Investment Conference.


Jamie Dinan (York Capital):  He keeps a lower media profile so it's always good to get his thoughts.  He avoids leverage since he lost a lot on margin in 1987 which was a very valuable lesson for him.  His keys to success?  Go where the action is and respect risk parameters.  Dinan notes that if you're in a position and the rules change, that's when bad trades happen.  York has more than half its base in illiquid credit.  He likes Japan, noting that "The Bank of Japan is your friend" and valuations are good with possible corporate governance changes coming.  He compared Japan now to the US in the 1980s in an economic sense.  He noted they've invested $700 million in Indiana toll roads.  Dinan also said he likes Puerto Rico but not the GO bonds.  He prefers complex infrastructure plays.


Jeff Smith (Starboard Value):  He mentioned a new idea of his, Macy's (M).  He thinks you get the company 'for free' when you take out the EV of its real estate.  He values the real estate at around $21 billion and hopes to work with management as he thinks M is worth $125 per share.


Bill Miller (Legg Mason):  He continues to like airlines stocks, saying they're in a long-term uptrend.  He likes Delta (DAL).  Commenting on bonds, he said that there's a benign bond market.  He also loves Amazon.com (AMZN) which is his biggest position at 6%.  He also likes builders and they're a big part of his portfolio as well, as he thinks they'll earn around 20% a year.


Jeff Gundlach (DoubleLine Capital):  He doesn't think the Fed will raise rates in 2015.  He said he's fond of emerging market debt (dollar denominated) and some high yield bonds (a shorter-term view on the latter).  He thinks high yield bonds will be a 'debacle' in 3-4 years.  Regarding bond rates, he notes they're rising secularly and went on to say that this is a good thing which most people don't realize.  Bond portfolios want rates to rise since you can reinvest at higher rates.  Looking extremely long term, he thinks India is a great place to put cash for the next 50 years.  Lastly, he also mentioned that he's allergic to companies that don't make money (AMZN).  He mentioned he bought Annaly Capital (NLY) recently and is out of his Apple (AAPL) position.  You can hear more from Gundlach in his recent Wall Street Week interview.


Keith Meister (Corvex Capital): He pitched American Realty Capital Properties (ARCP), a name he's presented at previous conferences as well (he owns 8% of the company).  He thinks you're taking 'bond like' risk for 'equity like' returns with this one and that the stock will pop once they reinstate the dividend and sees 25-50% upside.  Our Hedge Fund Wisdom newsletter analyzed the company if you want to play catch up quickly.


Tom Sandell (Sandell Asset Management):  His best idea was Ethan Allen (ETH), a furniture retailer.  He notes the company has practically zero debt and could be an ideal private equity candidate for a takeover.


Paul Singer (Elliott Management):  He likened the situation in China to potentially worse than the subprime crisis.  He thinks that perception of securities there has been impaired and it's just 'wild.'  Authorities there are trying to sustain the market with all kinds of moves but confidence is damaged by some of these rules.  He said the 70% haircut that Argentina forced on bondholders was the most severe he's seen in a large economy.  Singer said his firm essentially manages risk by putting in a lot of effort, a hands-on approach (basically activism).

...

Check back for more updates later.

Starboard Value's Jeff Smith on Activism: Wall Street Week Interview

Starboard Value's Jeffrey Smith recently appeared on Anthony Scaramucci's rebooted version of Wall Street Week.  In his appearance, Smith talks about his career background, how he got into investing, and of course activism.

On his approach, Smith says, 

"We look at businesses as to how they can be run better for the long-term.  We're looking at how companies can earn more money, be more profitable for the long-term. We're looking to make changes to those companies so they can run better.  But we're also willing to ask the shareholders what they think, to provide shareholders with a choice."

We also recently highlighted that Starboard took a stake in Brink's.  He said if you look at their margins, they're half of their main competitor.  So the thesis here is pretty simple as Smith thinks they can improve their margins and work with the company.

Embedded below is Jeffrey Smith's interview on Wall Street Week:



If you missed it, be sure to check out other Wall Street Week episodes like their interview with Carl Icahn, their interview with Jeff Gundlach and with Barry Rosenstein as well.

Starboard Value Discloses Brink's Stake in 13D Filing

Per a 13D filed with the SEC, Jeffrey Smith's activist fund Starboard Value has disclosed an 8.2% ownership stake in Brink's (BCO) with 3.97 million shares.

This is a newly revealed position as they did not own any shares at the end of 2014.  The filing shows Starboard was out buying BCO shares throughout March and April at prices largely between $26 and $29.

The 13D filing contains the standard activist boilerplate stating that Starboard thinks shares are an attractive investment opportunity and might engagement management in the future.

Per Google Finance, Brinks is "a provider of secure logistics and security solutions services ATM replenishment and maintenance, secure international transportation of valuables and cash management services, to financial institutions, retailers, government agencies including central banks, mints, jewelers and other commercial operations around the world."

Capitalize For Kids Sohn Canada Notes 2014: Ainslie, Dinan, Robbins & More

The inaugural Capitalize For Kids investors conference recently took place.  In partnership with the Sohn Conference Foundation, top investment professionals shared their latest insights in support of child health research and treatment.  Below are links to the speaker's presentations.


Capitalize For Kids Sohn Canada Conference Notes 2014

- Lee Ainslie (Maverick Capital): long Qihoo 360 

- Larry Robbins (Glenview Capital): 4 investment ideas

- Jamie Dinan (York Capital): a bunch of stock picks

- Frank Brosens (Taconic Capital): long Men's Wearhouse

- Jeff Smith (Starboard Value): long Yahoo & MeadWestvaco

- Brian Zied (Charter Bridge Capital): long Outerwall

- Steven Shapiro (GoldenTree): long Co-operative Bank

- Jacob Doft (Highline Capital): long Intercontinental Exchange

- Alex Roepers (Atlantic Investment Management): 3 long ideas

- Sahm Adrangi (Kerrisdale Capital): 2 longs

- Guy Gottfried (Rational Investment Group): long Tree Island Steel & TerraVest

- Jeff Hales (Alignvest Capital): long Corby Spirit & Wine

- Aaron Cowen (Suvretta Capital): long Burger King & Liberty Global

- Jody Lanasa (Serengeti Asset Management): 2 investment ideas

- Shawn Foley (Avenue Capital Group): 2 stock picks

- Michael Thompson (BHR Capital): long Golar LNG

- Evan Vanderveer (Vanshap Capital): long Keck Seng Investments

- Chuck Akre (Akre Capital): 4 case studies

Jeff Smith Long Yahoo & MeadWestvaco at Capitalize For Kids Sohn Canada Conference

We're posting up notes from the Capitalize For Kids Sohn Canada conference that just took place.  Next up is Jeff Smith of Starboard Value who talked about various investments including Darden, Yahoo, and MeadWestvaco.


Jeff Smith's Sohn Canada Presentation

Spoke about being in the news with the recent Darden Restaurants (DRI) battle. Mentioned they did not want management to sell Red Lobster, and they did.

Next talked about about Yahoo (YHOO). Many shareholders called him, as they are frustrated with lots of clear unlocked value. With a ~$40 B market cap, Alibaba stake is worth $35B, Yahoo Japan stake worth $7.5B, cash on hand at $7.5B and finally the core business of $5.5B. Full value of $62B, much higher than the current value. Opportunity exists given that they will need to pay taxes to exit Alibaba stake. Management is working hard to find a tax structure that is efficient. Mentioned they are currently in a black-out period and will have more details once this period ends. Price target $63 within 12 months (50% upside).

Next, pitched LONG MeadWestvaco Corp (MWV). which is a consolidated packaging company. They are looking to spin off the Specialty Chemical business and the Real Estate piece, both non-core businesses. Plans to reduce overhead and explore alternatives to unlock value of pension assets

Be sure to check out the rest of the presentations from Capitalize For Kids Sohn Canada here.

Starboard Value's Presentation on Transforming Darden Restaurants

Jeff Smith's activist firm Starboard Value is out with a presentation on their position in Darden Restaurants (DRI).  They're pushing for change here and has put together a massive 293 slide deck illustrating the company's margin improvement opportunity, the need for a turnaround in its Olive Garden brand, among other things.

Embedded below is Starboard Value's presentation "Transforming Darden Restaurants":



You can download a .pdf copy here.

For more on Starboard, check out Jeff Smith's presentation at the recent Value Investing Congress as well.

Value Investing Congress Notes: New York 2014 (Cooperman, Smith, Spier, Left & More)

We're posting up notes from the Value Investing Congress in New York that just ended.  Click the links below to go to each speaker's presentation


Value Investing Congress Notes: New York 2014

Lee Cooeperman (Omega Advisors): Are equities still the best house in the neighborhood? 

Carson Block (Muddy Waters Research): Short 500.com

Andrew Left (Citron): Short Zillow/Trulia

Guy Spier (Aquamarine): Bull case on POSCO

Jeff Smith (Starboard Value): 4 case studies 

Sahm Adrangi (Kerrisdale Capital): Long Via Varejo

Adam Crocker (Metropolitan Capital): Long Groupe FNAC, Molina Healthcare

Whitney Tilson (Kase Capital): Update on 2 shorts and 1 new short idea

Alex Roepers (Atlantic): 5 long ideas

David Hurwitz (SC Fundamental): Long Samho Development, KTcs Corp

Guy Gottfried (Rational Investment Group): 2 long ideas

Marcelo Lima (Heller House): Long Casino Guichard Perrachon

Amitabh Singhi (Surefin Investments): Plays on India

Cliff Remily (Northwest Capital): Pitch on Subsea 7

John Lewis (Osmium Capital): 2 ideas: E-plus and Rosetta Stone

SumZero Contest Winner: Long Samsung



Thanks to Nick Mazing from Ampera Capital for taking notes on day 2.

Jeff Smith's Value Investing Congress Presentation: 4 Case Studies

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Jeff Smith of Starboard Value who presented four case studies.


Jeff Smith's Value Investing Congress Presentation

Starboard Value:  80% "success" rate across its history; research shows 26.4% average (median?) returns vs. 9.7% market from when 13-D is filed.  Has placed over 100 people on various boards over 10 years.  18-24 month hold

Selection criteria to get involved:
(1) Plan to unlock value
(2) Clear path to execute (either cooperative management or ability win proxy)
(3) Company is undervalued on absolute basis 


Case study: Tessera 

Good IP licensing business for semi-conductors, good margin, some reinvestment in R&D needed
Tried licensing cell phone camera focus IP but failed bc the buyers did not want to buy without seeing it work in real life
So they build a test case but that wasn't enough
So they double-down and try to find someone to mass-produce their IP, and fail
So they double-down again, and bought a facility for $500 mm and started losing $150 mm per year 

Starboard comes with a plan to refocus the company, dump the camera business and do an overall cost reduction

Replaced the majority of the board, new CEO, sold non-core assets, reduced headcount

Interestingly, the board chairman who led the defense stayed on, and is now friendly with Starboard and can serve on other boards for them in campaigns 


Case study: Office Depot (ODP) 

Second largest office supply company; declining sales, growing overhead, lowest margins in the industry

Starboard plan: cut expenses, reduce SKUs, rationalize distribution, sell Mexico JV, change customer mix (biz vs. retail), merge with Office Max

ODP so far: new superstar CEO, new CFO, merger with OMX, sold JV, 3 new board members.


Case study: Darden 

(On-going situation which appears to have limited the details he put out: ie he did not discuss Red Lobster sale in his deck)

World's largest full service restaurant. Also a big real estate owner unlike it's peers which is an inefficient use of capital. Company runs several brands, two legacy Olive Garden and Longhorn, and smaller growth names. 

Opportunity: real estate value, operational underperformance (even worse when adjusted for non-payment of rent)

Current plan: running a board slate, implement performance plan, separate mature vs. newer concepts, explore franchising 


Case study: MWV 

Packaging conglomerate (various uses); non-core specialty chemicals and real estate businesses; run by the same family for many years (but with low current ownership %)

Very weak operating performance: both gross margins and SG&A spend are substantially worse vs. industry comps

Starboard plan: sell/spin non-core assets, reduce overhead, increase margins to comp, use of pension overfunded status in a merger  


Q&A: Good board memebers: independed, successful people who don't accept mediocrity, secure in who they are, don't "need" the board seat for income, true representatives of the shareholders, "statesmen", be willing to dissent, be willing to criticize CEO based on own industry experience

Q&A: Wilcox update: nothing to share  QnA: WPP update: has been a struggle, replaced CEO

Q&A: MWV transaction leakage: yes, a lot of tax planning will be involved; the overfunding can be used to merge with an underfunded industry competitor and receive some of the value there; reverse morris trusts or other structures in play


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

Starboard Value Goes Activist on Darden Restaurants (DRI) Too

Another activist has joined the Darden Restaurants (DRI) fight.  Jeffrey Smith's Starboard Value LP has disclosed a 5.55% stake in DRI with 7,250,000 shares via an activist 13D filing.

Last week, we highlighted Barington Capital's presentation on Darden Restaurants (DRI) where they called for the company to split up.  The company responded by announcing plans to spin off its Red Lobster chain. Now another activist is on the scene.

This is a brand new investment for Starboard.  They've engaged management in discussions and feel the announced plan doesn't maximize shareholder value.  Smith's 13D says,

"Specifically, Starboard believes there is a significant opportunity to dramatically improve the operating performance at the Issuer, as well as opportunities to realize substantial value from the Issuer’s real estate holdings and to explore other strategic options available to the Issuer to maximize shareholder value, including alternative business sale or separation transactions."

The company operates restaurants such as Olive Garden, Red Lobster, LongHorn Steakhouse, The Capital Grille, Yard House, Bahama Breeze, Seasons 52, and Eddie V's Prime Seafood.

For more on Starboard, see Jeff Smith's presentation on Wausau Paper.

Jeff Smith's Presentation on Wausau Paper: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Jeffrey Smith of Starboard Value.  He's an activist investor and talked about Wausau Paper (WPP).


Jeffrey Smith's Value Investing Congress Presentation

Wausau Paper (WPP)

Maker of toilet paper and paper towels.  He says everyone needs toilet paper.  Significant opportunity to dramatically increase cash flow through better execution.  Wants the company to change its name and return cash to shareholders.

He likes that it generates strong cashflow and almost acts like an oligopoly in local areas.  They focus on office toilet paper & towels.  Starboard owns a 15% position and wants the company to cost-cut and grow in order to then do a big buyback and dividend.

He said he can't talk Smithfield.  Starboard is seeking to vote down the buyout of the pork company.


Be sure to check out the other presentations from the New York VIC here.